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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended April 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to _________
Commission file number: 1-14192
VANSTAR CORPORATION
(Exact name of registrant as specified in charter)
DELAWARE 7373 94-2376431
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
5964 West Las Positas Boulevard
Pleasanton, California 94588
(510) 734-4000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Securities registered pursuant to Section 12 (b) of the Act: Common Stock,
$0.001 par value (the "Common Stock"); Traded - New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: N/A
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting shares held by non-affiliates of the
registrant on June 24, 1996 (based on the closing New York Stock Exchange sale
price on such date) was $385,594,652.
The number of outstanding shares of Common Stock of the Registrant's as of June
24, 1996 was 40,475,144.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1996 Annual Meeting of Stockholders to
be held on September 13, 1996, are incorporated by reference into Part III
hereof.
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PART I
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
With the exception of historical information, the matters discussed in
this Annual Report on Form 10-K include certain forward looking statements
that involve risks and uncertainties. Among the risks and uncertainties to
which the Company is subject are the risks inherent in the Company's
substantial indebtedness, the fact that the Company is indebted primarily to
a single creditor, the Company's relationship to and business dealings with
and with regard to Merisel FAB, Inc., the risks associated with managing the
Company's inventory in light of product life cycles and technological change,
the Company's relationship with its significant customers, intense price
competition in the Company's markets and the Company's dependence upon its
key vendors. As a result, the actual results realized by the Company could
differ materially from the statements made herein. Shareholders of the
Company are cautioned not to place undue reliance on forward looking
statements made in this Annual Report on Form 10-K or in any document or
statement referring to this Annual Report on Form 10-K.
ITEM 1. BUSINESS.
Vanstar Corporation ("Vanstar" or the "Company"), was incorporated in
September 1987 under the name ComputerLand Corporation following the acquisition
by William Y. Tauscher, Warburg, Pincus Capital Company, L.P. and Richard H.
Bard of the majority of the capital stock of the Company's predecessor, IMS
Associates, Inc. ("IMS"). IMS was merged with the Company after such
acquisition. At that time, the Company operated and franchised computer retail
stores in the United States.
The Company's current business capabilities were developed internally and
through acquisitions. These strategic acquisitions included: (i) the acquisition
from 1990 through 1992, of 23 of the Company's franchisees, operating in
33 major United States metropolitan markets; (ii) the 1991 acquisition of NYNEX
Business Centers; and (iii) the 1992 acquisition of the Customer Services
Division of TRW, Inc. In fiscal 1994, the Company sold its remaining United
States franchise business to Merisel FAB, Inc. ("Merisel FAB") a wholly-owned
subsidiary of Merisel Inc. ("Merisel"), adopted the name Vanstar, and changed
its fiscal year end from September 30 to April 30.
Today the Company is a leading provider of services and products designed
to build and manage personal computer ("PC") network infrastructures for
Fortune 1000 companies and other large enterprises. The Company provides
customized, integrated solutions for its customers' network infrastructure
needs by combining a comprehensive offering of value-added services with its
expertise in sourcing and distributing PCs, network products, computer
peripherals and software from many vendors. These integrated solutions are
designed to support the customer's PC network infrastructure throughout its
life cycle. Vanstar refers to these solutions as Life Cycle Services. Life
Cycle Services include design and consulting, acquisition and deployment,
operation and support, and enhancement and migration.
The Company believes that its customers require increasingly sophisticated
PC network systems and support infrastructures. Vanstar seeks to satisfy these
requirements while seeking to minimize its customers' internal staff
requirements and systems development risk. Vanstar enhances the delivery of its
services and products with automated systems, such as the Vanstar Navigator, and
with process methodologies, such as Horizon, to analyze, design and manage its
customers' PC network infrastructures better. The Company's goal is to reduce
the labor component of PC life cycle management and thereby increase efficiency,
reduce costs and make systems more reliable and easier to use for every
customer.
INDUSTRY
Large organizations are becoming increasingly dependent on information
technology to compete effectively in today's global markets. Organizations are
reengineering their businesses and are using microcomputer-based network
technology to enhance productivity. Distributed network solutions provide
dramatic computing performance relative to their price. PC networks increase
speed and flexibility and provide improved functionality to end users.
Achieving the optimal automation solution, however, is challenged by the
complexity of the distributed network environment and the lack of trained
resources to design, deploy and support networks.
The decision-making process that organizations face when planning,
selecting and implementing information technology solutions is growing more
complex. Organizations must select from numerous product options with
shortening life cycles. Networks are typically comprised of PCs, peripherals,
communications devices and software. Large enterprises must continually
integrate the diverse PC environments that have been developed internally.
Enterprises must design new networks, and upgrade and migrate to new systems.
Although PC networks enhance business productivity, they typically present
complex management problems and increased administrative costs. According to The
Gartner Group, a leading information technology research firm, the total cost of
ownership of a PC over five years may be as much as five times the initial
capital expense. In addition, the shortage of qualified information
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technology personnel limits many organizations' ability to capitalize on the
latest technologies. These organizations find it increasingly difficult and
costly to maintain the internal infrastructure needed to support their networks.
Since many businesses do not consider the internal management of their
technology infrastructure to be a core business activity, companies increasingly
seek to outsource the management and support of their PC network infrastructure.
Vanstar believes that no other company in the marketplace today offers
customers a sufficient range of integrated PC network solutions. Many service
providers, including systems integrators, consulting firms and those emerging
from the traditional mainframe environment, offer limited services, lack the
capacity to support large widespread enterprises, or focus primarily on
non-infrastructure services. Value-added resellers typically have a regional
focus or do not offer a broad line of products and services. They often are too
small to service the complex network requirements of the large multi-site
customer.
Vanstar believes that the key criteria which businesses consider when
evaluating PC network integration service providers include the provider's
ability: (i) to deliver one integrated solution spanning the PC network's life
cycle; (ii) to supply multi-vendor network products customized to specific
end-user demands; and (iii) to provide services on a national and international
basis.
THE VANSTAR SOLUTION
Vanstar's product and service offerings span the life cycle of the PC
network infrastructure. The Company provides customized, integrated solutions
for the network infrastructure needs of its customers by combining a
comprehensive offering of value-added services with its expertise in sourcing
and distributing products from a variety of vendors. The Company believes that
a single source solution enables customers to use fewer vendors, and provides
tighter integration, lower costs, fewer errors, and greater management control.
Vanstar's Life Cycle Services include design and consulting, acquisition and
deployment, operation and support, and enhancement and migration. Vanstar has
built substantial resource depth in all service areas and offers its integrated
services on a nationwide basis.
The Company believes that its customers are demanding increasingly
sophisticated PC network systems and support infrastructures. Vanstar seeks to
satisfy these requirements while minimizing its customers' internal staff
requirements and systems development risk. Vanstar enhances the delivery of its
services and products with automated systems that utilize open architecture and
are expandable. The Company believes that significant efficiency can be gained
by capturing data at the point of origin and controlling that data throughout
the life cycle. Vanstar also uses automation to give its customers greater
control over order management and provision of services. The Company's
automated systems permit direct links between the customer and the Company,
which the Company believes results in more efficient and faster delivery of
products and services at a lower overall cost. For example, the Vanstar
Navigator provides an easy-to-use customer interface for self-service order
management. The Vanstar Navigator connects to Vanstar's Cockpit, which provides
the Company's customer service representatives with real-time product
availability, pricing and customer-specific account information. Another
example is Vanstar's NOVA system, a service delivery system developed by the
Company for the management of many of the Company's services: systems
engineering, help desk, dispatch, repair, installation, moves/adds/changes and
asset management. NOVA is designed to reduce costs, to improve billing
procedures to capture additional revenue, and to improve resource utilization in
delivering the Company's support services. The Company expects NOVA to be
implemented during the second quarter of fiscal 1997. Vanstar believes that its
automated systems significantly enhance its ability to satisfy its customers'
needs.
STRATEGY
The Company's objective is to continue to be a leading provider of a
complete range of PC network infrastructure products and services to large
businesses throughout the world. Vanstar now offers a full
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array of services including design and consulting, acquisition and deployment,
operation and support, and enhancement and migration. To achieve its objective,
the Company believes it must:
LEVERAGE ITS BROAD CUSTOMER BASE
Vanstar has approximately 300 current customers who purchased products and
services totaling at least $1 million during fiscal year 1996. Preserving and
enhancing its relationship with these customers is the Company's first priority.
In support of this effort, the Company recently brought its Starbase Account
Management system on-line. Starbase is an extensive database of customer
information that can be integrated with external data to pinpoint opportunities
for the Company's Life Cycle Services.
During the fiscal years ended April 30, 1996 and 1995, Microsoft
Corporation ("Microsoft") accounted for 12.0% and 10.8% of the Company's total
revenues, respectively. In August 1995, the Company entered into an agreement
with Microsoft to manage Microsoft's PC procurement, including delivery, setup
and installation of PC's and peripherals for approximately 12,500 desktops in
the United States, over a three-year period, for approximately $550.0 million.
DEVELOP AND ENHANCE VALUE-ADDED SERVICES
The Company believes that opportunities exist to increase its operating
margins by increasing the range of value-added services that it currently offers
its customers. The market for outsourced PC network services is expected to
grow at a compound annual rate of approximately 14%. These services are
typically sold at higher margins than more traditional services, such as product
procurement or repair and maintenance. Vanstar has developed expertise and
solutions in a number of value-added market segments, and will continue to
develop new services using its Horizon development methodology. The Company
also works with its suppliers, many of which provide leading technologies, to
develop new services. For example, Vanstar provides services to integrate
Microsoft Windows NT and Microsoft BackOffice into Vanstar's customers'
environments. The Company believes its relationship with Microsoft enhances its
knowledge base and expertise. Vanstar continually evaluates and pursues
opportunities to acquire technology and other resources that will enhance and
extend the reach of its value-added service offerings. Vanstar believes numerous
opportunities will exist in the future to acquire service providers who
complement its existing network services business.
EXPAND ITS WORLDWIDE SERVICE CAPABILITIES
The Company believes that in addition to being in all major United States
markets, it must also expand its global offerings. To expand its global
presence, the Company is implementing a program that overlays Vanstar's systems
and processes onto the service delivery and product distribution capabilities of
Groupe Bull, a European-based global computer and computer services company, and
Ingram Micro, an international computer products distributor. This integrated
program will provide to Vanstar's US-based multinational customers a common
management interface covering Vanstar performed services in the United States or
services from Vanstar or its alliance partners in other countries.
PRODUCTS AND SERVICES
Vanstar combines a full suite of products and services to deliver custom,
integrated solutions for the PC network infrastructure requirements of its
customers. The Company combines value-added services with its expertise in
sourcing and distributing products from a variety of vendors to provide network
integration solutions. These integrated Life Cycle Service solutions are
designed to support the PC network infrastructure throughout its life cycle.
Life Cycle Services include network design and consulting, acquisition and
deployment, operation and support, and enhancement and migration. The Company
offers each service as a discrete service or as part of an integrated Life Cycle
Services program. The Company believes that proper planning and management are
essential to providing quality service
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and to attaining customer satisfaction. Through planning and management, the
Company seeks to optimize solutions at any point in the PC network life cycle.
DESIGN AND CONSULTING SERVICES
Vanstar offers network design and consulting services that address the PC
network life cycle. For network design, the Company uses a five-step
methodology to assist customers in selecting, designing, planning and executing
a network project: discovery, current state definition, requirements definition,
solution design, and implementation planning. The Company employs national
consulting teams, such as its Enterprise Communications Consulting Group, which
provides expertise in cabling systems design, hubbing architecture,
bridging/routing/switching systems, wide area transport and network management.
Other teams have expertise in process-mapping and reengineering for outsourcing
PC life cycle management, asset management and disaster recovery planning.
ACQUISITION AND DEPLOYMENT SERVICES
Vanstar's network deployment services include product procurement,
configuration, distribution, installation, cabling and connectivity.
The Company sources PC's, servers, network products, computer peripherals
and software to equip the network environment. The Company provides products
from over 700 vendors, including Compaq Computer Corporation, International
Business Machines Corporation ("IBM"), Hewlett-Packard Company, Apple Computer,
Inc., Sun Microsystems, Inc., Microsoft Corporation, Novell, Inc., Lotus
Development, Cisco Systems, 3Com Corporation and Bay Networks, Inc. The Company
is authorized to sell a wide variety of network products, including servers,
desktop and mobile systems, bridges, routers, hubs and concentrators, operating
systems, applications, groupware and electronic mail products. Vanstar provides
a single point of contact for customers to place and track all product orders.
The Company's customer support groups in Indianapolis, Indiana and Pleasanton,
California provide complete order management services from quotation to order
processing, order tracking and fulfillment.
Vanstar has centralized its configuration and distribution facilities in
two highly-automated distribution centers located in Indianapolis, Indiana and
Livermore, California. The distribution facilities handle product receiving,
warehousing, central configuration, testing, order handling and shipping. The
Company ensures timely and reliable network equipment integration by providing
and coordinating a number of deployment services such as set-up, installation,
cabling, server connection and testing.
OPERATION AND SUPPORT SERVICES
Vanstar offers a variety of network operation and support services,
including moves, adds and changes, repair and maintenance, help desk and network
monitoring and asset management.
The Company installs additional hardware and software to increase the
capacity of, or otherwise upgrade, existing products and systems. Generally,
moves, adds and changes assist customers in avoiding the costs associated with
acquiring new systems.
Vanstar offers repair and maintenance services, including extended warranty
service, depot repair and preventive maintenance. These services are designed to
minimize product failures and to extend the useful life of equipment. On all
products for which the Company is authorized to provide warranty coverage, the
Company offers its customers extended warranty service on standard manufacturer
configurations and optional components, up to 24 hours per day, 365 days per
year, anywhere in the United States within 100 miles of any of Vanstar's
approximately 90 service locations.
Vanstar offers help desk support through its Field Sales and Service
Operations Center located in Roswell, Georgia. Help desk support is available
for all major software applications and operating
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systems, including network software. Help desk support can also troubleshoot
problems for all major hardware products. Customers access the help desk via a
toll-free number. Support is available up to 24 hours per day, 7 days per week.
The Company's help desk support group utilizes a call management system to track
customer calls, to provide help desk with professionals on-line access to
support standards, and to maintain a technical support database. Vanstar's help
desk offerings can be delivered either from its Service Operations Center or
from an on-site facility established at a customer's location. The Company also
provides remote LAN monitoring and administration services.
The Company provides asset management services. The Company's asset
management system captures and maintains detailed information about a customer's
installed base of PC hardware and software assets, and about all subsequent
service events related to those assets. It generates reports and schedules
through an end-user interface. The Company can provide a detailed analysis of
the installed base for use in managing asset costs.
ENHANCEMENT AND MIGRATION SERVICES
Vanstar offers enhancement and migration services to optimize the use of
information technology by its customers and reduce the cost and disruption of
changing technology platforms. The Company's tools and methods can migrate the
customer to new hardware and software platforms. Developed under Horizon,
Vanstar's development methodology, and managed using Lotus Notes, these
comprehensive tool kits detail the full life cycle processes and procedures for
planning and implementing a migration project. Two of the Company's programs
help customers migrate to Windows 95 and Windows NT.
EDUCATION SERVICES
Vanstar's training and education services include a nationwide offering of
instructor-led and computer-based, self-paced training ("CBT") at both the
introductory and more advanced levels, and covering operating systems,
networking, electronic mail and personal productivity software. Through mobile
classrooms and a combination of CBT training with phone-based instructor
support, Vanstar can optimize delivery of education. Vanstar is a Microsoft
Authorized Technical Education Center, providing training for Microsoft Windows
95, Windows NT, and BackOffice.
RECENT ACQUISITIONS
Effective May 24, 1996, the Company, through a wholly-owned subsidiary,
acquired certain of the assets and assumed certain of the liabilities of
Dataflex Corporation and of Dataflex's wholly-owned subsidiary, Dataflex
Southwest Corporation. The assets acquired and liabilities assumed comprise
substantially all of the assets and liabilities previously associated with the
business operations of Dataflex known as the Dataflex Western Region and
Dataflex Southwest Region. The two Dataflex regions offer PC product
distribution, service and support in the states of Arizona, California,
Colorado, New Mexico, Nevada and Utah and reported revenues of approximately
$145 million for the fiscal year ended March 31, 1996. The purchase price of
the assets and businesses acquired from Dataflex was approximately $42.0
million, subject to certain post-closing adjustments. Of this amount, the
Company paid approximately $37.0 million in cash on May 29, 1996, with the
remainder due following the completion of an audit of the assets acquired and
the liabilities assumed as of May 31, 1996 and the completion of certain other
post-closing matters.
In June, 1996, the Company agreed to acquire Mentor Technologies, LTD
("Mentor"), an Ohio limited partnership providing information technology
training and education. Mentor reported revenues of $5.5 million for its fiscal
year ended December 31, 1995. The acquisition of Mentor is expected to
significantly expand the Company's education and training business in the
midwestern United States. Consummation of the transaction is subject to certain
closing conditions and compliance with applicable law.
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AUTOMATED SYSTEMS, PROCESS METHODOLOGIES AND TECHNICAL PERSONNEL
Vanstar enhances its service delivery with customized automated systems
which utilize open architecture and enable Vanstar's customers to change the
processes they use to manage their PC network support infrastructures, thereby
reducing cost and managing complexity. The Company believes efficiency can be
gained by capturing data at its point of origin and managing that data
throughout the life cycle. The Company believes that full life cycle automation
increases efficiency and reduces touch costs. Process methodologies allow
Vanstar to analyze, design and manage the PC network environment better. In
addition to the Company's systems and methodologies, Vanstar believes that
expert technical and consulting personnel are fundamental to its ability to
deliver complete network life cycle solutions.
AUTOMATED SYSTEMS
Vanstar has invested significant resources automating its internal service
delivery systems and developing electronic links between the Company's systems
and its customers' systems. The Company believes that these systems reduce
costs, enhance service quality and improve reporting. The automated systems
include the Vanstar Navigator, Cockpit, DCMS, FLEX and Tracker, and NOVA. The
Company uses electronic links, including Electronic Data Interchange, to connect
to customers' systems.
- VANSTAR NAVIGATOR. The Vanstar Navigator is an order management
system designed to give customers access to information about products
available from the Company. The Vanstar Navigator can be installed on
either a single PC or in a multi-user environment at the customer's
site. The Vanstar Navigator provides customers with detailed
information on product pricing and availability, and can generate
quotes, purchase orders, order status, invoice history, on-line help
and toll-free telephone support. With the Vanstar Navigator,
customers can place and track orders themselves.
- COCKPIT. Vanstar's customer service representatives use the Company's
order management system, called Cockpit, to generate quotes and to
enter and track product orders. Cockpit provides real-time product
availability and pricing information, and maintains detailed,
customer-specific account information, including account history,
standard product configurations, special pricing, locations,
authorized purchasing personnel and credit limits.
- DCMS, FLEX AND TRACKER. Vanstar's Distribution Center Management
System ("DCMS") and its FLEX systems operate the Company's automated
distribution and configuration centers located in Indianapolis,
Indiana, and Livermore, California. DCMS and FLEX manage the flow of
orders through the distribution process and provide the on-line
information necessary to configure systems to customers' standards.
Operating on a LAN, DCMS assigns a unique barcode fingerprint to each
SKU as it arrives. Warehouse staff use radio frequency, hand-held
devices to manage and track the movement of product orders through the
centers. Vanstar's Tracker system tracks each package from the
warehouse to the customer site. Vanstar's distribution centers are
collocated with Federal Express depots. The Company's systems are
integrated with Federal Express' systems, providing complete
point-to-point delivery and tracking.
- NOVA. Vanstar has developed NOVA, a service delivery system for the
management of its systems engineering, help desk, dispatch, repair,
installation, moves/add/changes and asset management service
offerings. The Company expects NOVA to be implemented during the
second quarter of fiscal 1997. NOVA's resource allocation system is
designed to insure that the appropriate technical personnel are
available to respond to customer service calls. Service calls placed
by customers are received through Vanstar's First Touch program. NOVA
automatically determines which field engineer is available and sends
all relevant customer information to the field engineer through a
field computing device via radio. NOVA is backed by more than 50
strategic parts stocking locations in the United States; spare parts
can be delivered the same day or
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shipped overnight to either the customer location or the field service
engineer. The Company believes that NOVA will result in increased
customer network uptime, more accurate matching of parts and field
service engineer skills to service needs, more accurate and
comprehensive information management, and lower costs.
- ELECTRONIC LINKS. In order to create a cooperative service
environment, Vanstar uses electronic links to connect its systems to
its customers' systems through Electronic Data Interchange, the
Internet or through private Wide Area Networks.
PROCESS METHODOLOGIES
The Company believes that the complex and sometimes unpredictable technical
environment and the customization required by customers contribute to the
variability of service delivery requirements. To manage this complexity,
Vanstar uses several methods for capturing, codifying and disseminating
organizational knowledge to individuals in the field. Using Horizon, its
professional service development process, Vanstar has developed a series of tool
kits to provide standards and solutions for common network problems plus tools
for solving unique problems. Lotus Notes is the primary vehicle used by the
Company for electronic delivery of systematized procedures and processes. The
Company also employs flexible process-mapping, just-in-time training and
knowledge-based management techniques.
TECHNICAL PERSONNEL
Vanstar employs over 3,100 technical professionals in the United States.
Vanstar expanded its systems engineering force from approximately 200 in March
1994 to over 950 as of June 1996. The Company intends to significantly expand
its staff of technical professionals. The technical personnel are both client
dedicated and centrally dispatched, and provide service either on a contract
basis or a project basis. The Company is also developing groups of technical
professionals who specialize in the areas of operations, methods and practices,
process management and consulting. The Company's engineering staff is certified
in the major network operating systems and has experience with LAN and WAN
networking products and protocols. The Company supports major network operating
systems, including Microsoft Windows NT and BackOffice, Novell NetWare, IBM LAN
Server and AppleShare. In May 1995, the Company entered into an agreement with
Microsoft Corporation pursuant to which the Company hired a substantial number
of systems engineers to support Microsoft's Back Office and Windows NT
networking products.
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CUSTOMERS
The Company's broad customer base of primarily Fortune 1000 companies and
other large enterprises includes the following, all of which purchased products
and services in excess of $1.0 million during the 12 months ended April 30, 1996
from the Company:
CUSTOMER NAME INDUSTRY
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Aluminum Company of America Manufacturing
American Greetings Corporation Manufacturing
Autodesk Inc. Software
BellSouth Corporation Telecommunications
Charles Schwab and Company Inc. Financial Services
Cigna Corporation Insurance
Duke Power Company Utility
Federal Express Corporation Transportation
Florida Power & Light Company Utility
Ford Motor Company Manufacturing
Hoechst Celanese Corporation Chemicals
Hoffmann-La Roche Inc. Pharmaceuticals
Integrated Systems Solutions Corporation Computer Services
International Business Machines Corporation Computers
International Paper Company Forest Products
Lehman Brothers Inc. Financial Services
Liberty Mutual Insurance Group Insurance
Lotus Development Corporation Software
MCI Communications Corporation Telecommunications
Microsoft Corporation Software
Mobil Oil Corporation Oil/Gas
Motorola Inc. High Technology
Owens-Corning Fiberglas Corporation Manufacturing
Phoenix Newspapers Inc. Publishing
Praxair Inc. Manufacturing
Sedgwick James Inc. Insurance
Signet Banking Corp. Financial Services
Sony Music Entertainment Inc. Entertainment
State of New Jersey State Government
Sybase Inc. Software
The Equitable Companies Inc. Insurance
United Technologies Corporation Aerospace and Manufacturing
UNUM Corporation Insurance
MARKETING AND SALES
Vanstar markets its PC network Life Cycle Services by targeting executives
of large enterprises who have information technology decision-making authority.
As of April 30, 1996, the Company's domestic sales network consisted of over 760
field sales and service representatives. Vanstar's direct sales force is
comprised of account managers and technical sales personnel. Vanstar's account
manager force is responsible for prospecting new business, maintaining and
expanding relationships with current customers, and ensuring customer
satisfaction. Technical sales personnel provide the technical expertise to
support and supplement the sales effort. To improve sales productivity, Vanstar
equips its sales organization with sales force automation tools that provide
them with a complete suite of marketing and account management tools. These
tools reduce the sales representatives' physical dependence on the
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branch offices, allowing Vanstar to operate a "virtual office" environment while
sharing information across multiple departments.
COMPETITION
The markets in which the Company operates are characterized by intense
competition from several types of technical service providers, including
mainframe and mid-range computer manufacturers and outsourcers entering the
personal computer services marketplace. These include Digital Equipment
Corporation Multi-Vendor Services, Electronic Data Systems Corporation,
Hewlett-Packard Company Multi-Vendor Services and Integrated Systems Solution
Corporation. Other competitors include VARs, systems integrators and
third-party service companies, such as AmeriData Technologies, Inc., CompuCom
Systems, Inc., DecisionOne, Entex Information Services, InaCom Corp., MicroAge,
Inc. and Technology Service Solutions ("TSS"). The Company expects to face
further competition from new market entrants and possible alliances between
competitors in the future. Certain of the Company's current and potential
competitors have greater financial, technical, marketing and other resources
than the Company. As a result, they may be able to respond more quickly to new
or emerging technologies and changes in customer requirements or to devote
greater resources to the development, promotion and sales of their services than
the Company.
EMPLOYEES
As of June 1996, the Company had approximately 4,100 employees. The
Company has never experienced a work stoppage and its employees are not covered
by a collective bargaining agreement. The Company believes that its relations
with its employees are good.
ITEM 2. PROPERTIES.
The Company leases approximately 134,475 square feet of office space for
its headquarters in Pleasanton, California, under a lease expiring in
January 1998. The Company has signed an agreement to extend the lease for
92,000 of the 134,475 square feet until 2006. In June 1996, the Company signed
an agreement to sell its approximately 180,000 square foot distribution center
in Indianapolis, Indiana. Following the sale of the facility, the Company will
leaseback the premises through April 1997 during construction of a new,
approximately 400,000 square foot build-to-specification distribution center in
Indianapolis, Indiana with occupancy targeted for May 1997. The lease on the
new facility will expire in April 2007. In June 1996, the Company reduced the
amount of space leased in its additional and separate warehouse facility in
Indianapolis, Indiana from 129,000 square feet to approximately 64,000 square
feet and extended the lease on the property through February 2007. In addition,
the Company leases an approximately 192,000 square foot distribution center and
an approximately 29,000 square foot return center in Livermore, California, an
approximately 52,000 square foot repair facility in Wharton, New Jersey, and
approximately 87,000 square feet of office space in Roswell, Georgia. The lease
for the Livermore, California, distribution center expires in September 1999;
the lease for the Livermore, California, return center expires in June 1997; the
lease of the Wharton, New Jersey, premises expires in March 2004, subject to one
five-year option to renew held by the Company; and the lease for the Roswell,
Georgia, premises expires in May 1998. The Company leases other properties that
it does not consider material to its operations. The Company believes that its
facilities are suitable and adequate for its present operations.
ITEM 3. LEGAL PROCEEDINGS
Various legal actions arising in the normal course of business have been
brought against the Company and certain of its subsidiaries. Management
believes that the ultimate resolution of these actions will not have a material
adverse effect on the Company's financial position or results of operations,
taken as a whole.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 29, 1996, a majority of the Stockholders voted in favor of
amending the Company's 1993 Stock Option Plan and the 1988 Stock Option Plan,
approved the Employee Stock Purchase Plan and approved the Restated Certificate
of Incorporation pursuant to a written consent of Stockholders in lieu of a
meeting. The remaining Stockholders received a notice of written action of the
Stockholders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock has traded on the New York Stock Exchange under
the symbol VST since March 11, 1996. As of June 24, 1996, there were 336
record holders of the Company's Common Stock. The Company has never declared or
paid any cash dividends on the Common Stock and does not presently intend to pay
cash dividends on the Common Stock in the foreseeable future. The Company
intends to retain future earnings for reinvestment in its business. The
Company's Financing Program Agreement with IBM Credit Corporation ("IBMCC")
limits the Company's ability to pay cash dividends on the Common Stock.
The Company's stock commenced trading on March 11, 1996 at $10.00. At the
end of the Company's fourth quarter on April 30, 1996, the stock closed at
$13.63. From March 11, 1996 to June 24, 1996 the high close price was $17.13
and the low was $9.38. On June 24 , 1996 the closing sale price for the
Company's Common Stock was $16.38.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated annual financial data presented below was
derived from the Company's audited consolidated financial statements. This
selected consolidated annual financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements.
<TABLE>
<CAPTION>
SEVEN
ENDED APRIL 30, MONTHS FISCAL YEAR ENDED SEPTEMBER 30,
------------------------ APRIL 30, --------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue $ 1,804,813 $ 1,385,392 $ 586,514 $ 1,099,813 $ 787,798 $ 213,738
Cost of revenue 1,559,886 1,174,854 489,512 921,789 696,518 180,141
Gross margin 244,927 210,538 97,002 178,024 91,280 33,597
Selling, general and
administrative expenses 201,880 182,411 97,436 181,320 158,644 48,485
Operating income (loss) 43,047 28,127 (434) (3,296) (76,272) (14,888)
Interest expense, net 30,265 25,978 11,181 22,196 20,242 11,019
Income (loss) from continuing
operations 8,053 1,268 (6,969) (18,751) (54,228) (15,803)
Income from discontinued
operations 9,194 - 51,474 14,505 2,261 25,320
Net income (loss) 17,247 1,268 44,505 (4,246) (51,967) 9,517
Pro forma net income per
share (1) $ 0.50 $ 0.04
Shares used in computing pro
forma net income per
share (1) 34,250 32,486
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, SEPTEMBER 30,
--------------------------------------------- -------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) $315,742 $ 267,852 $ (73,511) $(114,902) $(107,441) $ (14,554)
Total assets 803,365 705,295 610,458 576,279 700,035 598,730
Short-term borrowings - - 262,783 194,660 227,692 158,124
Current maturities of
long-term debt 1,759 7,685 12,788 23,190 14,898 6,836
Long-term debt, less
current maturities 293,007 337,750 6,732 13,017 32,219 46,630
Redeemable preferred stock
and accrued dividends - - 4,777 4,464 3,986 3,559
Total stockholders' equity 127,053 22,589 24,797 13,584 684 56,049
</TABLE>
<PAGE>
QUARTERLY OPERATING RESULTS
The following tables set forth the unaudited operating results for each
of the four quarters in fiscal year 1996 and 1995. These numbers have been
derived from the Company's unaudited quarterly financial statements and in
the opinion of management, reflect all adjustments (of a normal and recurring
nature) which are necessary for a fair representation of the results of
operations for the interim periods.
<TABLE>
<CAPTION>
4TH 3RD 2ND 1ST
--- --- --- ---
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED APRIL 30, 1996
REVENUE:
Products $424,055 $391,130 $389,030 $374,083
Services:
Networking 17,197 16,514 13,561 10,855
Support services 36,145 34,758 34,031 33,484
Other services 8,257 4,460 8,506 8,747
------- ------- ------- -------
Total revenue 485,654 446,862 445,128 427,169
------- ------- ------- -------
GROSS MARGIN:
Products 40,843 36,254 36,597 34,200
Services:
Networking 5,423 6,353 6,338 4,899
Support services 11,542 13,075 12,091 12,423
Other services 6,982 3,208 7,326 7,373
------- ------- ------- -------
Total gross margin 64,790 58,890 62,352 58,895
------- ------- ------- -------
GROSS MARGIN PERCENTAGE:
Products 9.6% 9.3% 9.4% 9.1%
Services:
Networking 31.5% 38.5% 46.7% 45.1%
Support services 31.9% 37.6% 35.5% 37.1%
Other services 84.6% 71.9% 86.1% 84.3%
------- ------- ------- -------
Total gross margin 13.3% 13.2% 14.0% 13.8%
------- ------- ------- -------
Selling, general and administrative expenses 31,855 76,891 46,772 46,362
% of total revenue 6.5% 17.2% 10.5% 10.9%
Operating income (loss) 32,935 (18,001) 15,580 12,533
% of total revenue 6.8% (4.0%) 3.5% 2.9%
------- ------- ------- -------
Income (loss) from continuing operations 16,519 (16,731) 4,951 3,314
Gain on disposal of discontinued businesses - 9,194 - -
------- ------- ------- -------
NET INCOME (LOSS) $ 16,519 $ (7,537) $ 4,951 $ 3,314
------- ------- ------- -------
------- ------- ------- -------
Proforma net income (loss) per share (1):
Continuing operations $ 0.44 $ (0.53) $ 0.15 $ 0.10
Discontinued operations - 0.29 - -
------- ------- ------- -------
TOTAL PROFORMA NET INCOME (LOSS) PER SHARE $ 0.44 $ (0.24) $ 0.15 $ 0.10
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
During the third quarter of fiscal year 1996, the Company recorded a $31.1
million provision against its extended credit due from Merisel FAB. In the
fourth quarter of fiscal year 1996, the Company reversed $15.6 of this
provision (see Notes 2 and 15 of Notes to Consolidated Financial Statements).
<PAGE>
<TABLE>
<CAPTION>
4TH 3RD 2ND 1ST
--- --- --- ---
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED APRIL 30, 1995
REVENUE:
Products $ 342,784 $ 303,171 $ 289,819 $ 251,618
Services:
Networking 9,535 8,508 7,552 6,247
Support services 33,684 32,587 32,361 32,562
Other services 8,173 8,587 8,822 9,382
---------- -------- --------- ---------
Total revenue 394,176 352,853 338,554 299,809
---------- -------- --------- ---------
GROSS MARGIN:
Products 32,701 28,160 27,074 25,578
Services:
Networking 3,550 3,384 3,534 2,643
Support services 13,655 14,162 13,428 13,808
Other services 6,836 7,038 7,230 7,757
---------- -------- --------- ---------
Total gross margin 56,742 52,744 51,266 49,786
---------- -------- --------- ---------
GROSS MARGIN PERCENTAGE:
Products 9.5% 9.3% 9.3% 10.2%
Services:
Networking 37.2% 39.8% 46.8% 42.3%
Support services 40.5% 43.5% 41.5% 42.4%
Other services 83.6% 82.0% 82.0% 82.7%
---------- -------- --------- ---------
Total gross margin 14.4% 14.9% 15.1% 16.6%
Selling, general and administrative expenses 47,834 45,610 44,778 44,189
% of total revenue 12.1% 12.9% 13.2% 14.7%
Operating income 8,908 7,134 6,488 5,597
% of total revenue 2.3% 2.0% 1.9% 1.9%
---------- -------- --------- ---------
NET INCOME $ 890 $ 76 $ 285 $ 17
---------- -------- --------- ---------
---------- -------- --------- ---------
PROFORMA NET INCOME PER SHARE (1) $ 0.03 $ 0.00 $ 0.01 $ 0.00
---------- -------- --------- ---------
---------- -------- --------- ---------
</TABLE>
______
(1) Pro forma amounts give effect to the conversion of all outstanding shares
of Preferred Stock and Class B Common Stock into Common Stock and the exchange
of all outstanding warrants for shares of Common Stock as if the conversion had
occurred at the later of the beginning of fiscal year 1995 or the issuance date.
Pro forma net income per share is calculated based upon the weighted average
number of shares of Common Stock and dilutive common stock equivalents
outstanding in each quarter. Consequently, the sum of the quarterly pro forma
net income per share does not necessarily equal the year-to-date pro forma
net income per share.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
RESULTS OF OPERATIONS
Vanstar's four primary sources of revenue are: products, networking,
support services and other services. Through these products and service
offerings, Vanstar combines its capabilities to deliver a custom, integrated
solution for the PC network infrastructure requirements of its customers.
Products revenue is primarily derived from the sale of computer hardware,
software, peripherals and communications devices manufactured by third parties
and sold by the Company, principally to implement integration projects.
Networking revenue is primarily derived from high value-added services,
including services focused on the server and communication segments of the PC
network infrastructure. Networking revenue includes network installation, design
and consulting, and enhancement and migration, as well as server deployment and
support. Support services revenue is primarily derived from services performed
for the desktop and focused on the client or user of the PC network. These
support services include desktop installation, repair and maintenance, moves,
adds and changes, extended warranty, asset management and help desk. Other
services revenue is primarily derived from fees earned on the distribution
services agreement with Merisel FAB and training and education services.
Pursuant to the distribution services agreement, the Company provides product
distribution to franchises and affiliates of Merisel FAB (see Note 2 of Notes to
Consolidated Financial Statements).
The following tables set forth for the periods indicated, the Company's
(i) total revenue, gross margin and gross margin percentage by revenue source,
(ii) selling, general and administrative expenses in total and as a percentage
of total revenue and (iii) operating income (loss) in total and as a percentage
of total revenue.
<TABLE>
<CAPTION>
SEVEN
FISCAL YEAR MONTHS FISCAL YEAR
ENDED APRIL 30, ENDED ENDED
------------------------ APRIL 30, SEPTEMBER 30,
1996 1995 1994 1993
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUE:
Products $ 1,578,298 $ 1,187,392 $ 490,576 $ 935,165
Services:
Networking 58,127 31,842 9,829 15,652
Support services 138,418 131,194 76,785 143,553
Other services 29,970 34,964 9,324 5,443
----------- ----------- ---------- -----------
Total revenue $ 1,804,813 $ 1,385,392 $ 586,514 $ 1,099,813
----------- ----------- ---------- -----------
GROSS MARGIN:
Products $ 147,894 $ 113,513 $ 53,261 $ 110,651
Services:
Networking 23,013 13,111 3,291 7,525
Support services 49,131 55,053 33,001 57,320
Other services 24,889 28,861 7,449 2,528
----------- ----------- ---------- -----------
Total gross margin $ 244,927 $ 210,538 $ 97,002 $ 178,024
----------- ----------- ---------- -----------
GROSS MARGIN PERCENTAGE:
Products 9.4% 9.6% 10.9% 11.8%
Services:
Networking 39.6% 41.2% 33.5% 48.1%
Support services 35.5% 42.0% 43.0% 39.9%
Other services 83.0% 82.5% 79.9% 46.4%
----------- ----------- ---------- -----------
Total gross margin percentage 13.6% 15.2% 16.5% 16.2%
----------- ----------- ---------- -----------
<PAGE>
Selling, general and administrative expenses $ 201,880 $ 182,411 $ 97,436 $ 181,320
% of total revenue 11.2% 13.2% 16.6% 16.5%
Operating income (loss) $ 43,047 $ 28,127 $ (434) $ (3,296)
% of total revenue 2.4% 2.0% (0.1)% (0.3)%
</TABLE>
YEAR ENDED APRIL 30, 1996 AS COMPARED TO THE YEAR ENDED APRIL 30, 1995
PRODUCTS. Revenue increased 32.9% to $1.6 billion for the year ended
April 30, 1996 from $1.2 billion for the year ended April 30, 1995 as a result
of the Company's successful sales and marketing efforts and strengthened market
position. Gross margin increased 30.3% to $147.9 million for the year ended
April 30, 1996 from $113.5 for the year ended April 30, 1995. Gross margin
percentage decreased to 9.4% for the year ended April 30, 1996 from 9.6% for the
year ended April 30, 1995 due to the Company's emphasis on larger customers
which resulted in lower gross margin percentages but higher sales volumes that
more than offset the associated increase in distribution costs.
NETWORKING. Revenue increased 82.5% to $58.1 million for the year ended
April 30, 1996 from $31.8 million for the year ended April 30, 1995. This
increase reflects the increased customer demand for the Company's value-added PC
network service offerings. Gross margin increased 75.5% to $23.0 million for the
year ended April 30, 1996 from $13.1 million for the year ended April 30, 1995.
Gross margin percentage decreased to 39.6% for the year ended April 30, 1996
from 41.2% for the year ended April 30, 1995 due to increased investments in
systems engineers.
SUPPORT SERVICES. Revenue increased 5.5% to $138.4 million for the year
ended April 30, 1996 from $131.2 million for the year ended April 30, 1995. This
increase reflects the growth in support services related to increased product
sales which more than offset a decline in repair and maintenance services
attributable to improved product reliability and a shift by vendors to extended
warranty programs. Gross margin decreased 10.8% to $49.1 million for the year
ended April 30, 1996 from $55.1 million for the year ended April 30, 1995. Gross
margin percentage decreased to 35.5% for the year ended April 30, 1996 from
42.0% for the year ended April 30, 1995, as a result of startup costs associated
with newly obtained contracts.
OTHER SERVICES. Revenue decreased 14.3% to $30.0 million for the year ended
April 30, 1996 from $35.0 million for the year ended April 30, 1995. The
decrease was the result of a negotiated reduction in the distribution fee from
Merisel FAB and reduced demand for the Company's training services. Gross margin
decreased to $24.9 million for the year ended April 30, 1996 from $28.9 million
for the year ended April 30, 1995 while the gross margin percentage remained
relatively constant.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 10.7% to $201.9 million for the year ended
April 30, 1996 from $182.4 million for the year ended April 30, 1995. Selling,
general and administrative expenses as a percentage of total revenue decreased
to 11.2% for the year ended April 30, 1996 from 13.2% for the year ended
April 30, 1995. This decrease is due to higher volumes of product and networking
revenue that more than offset the increase in associated fixed costs as well as
cost reduction efforts to consolidate administrative functions and centralize
branches.
OPERATING INCOME. Operating income increased 53.0% to $43.0 million for
the year ended April 30, 1996 from $28.1 million for the year ended April 30,
1995. Operating income as a percentage of total revenue increased to 2.4% for
the year ended April 30, 1996 from 2.0% for the year ended April 30, 1995 as the
decrease in selling, general and administrative expenses as a percentage of
total revenue more than offset the decrease in the total gross margin
percentage.
INTEREST. Interest expense is incurred primarily on borrowings to support
the working capital requirements of the products line of business and the
Merisel FAB distribution services agreement.
<PAGE>
Interest expense increased 10.0% to $35.8 million for the year ended April 30,
1996 from $32.6 million for the year ended April 30, 1995 due principally to
higher average borrowings during fiscal year 1996 related to increased inventory
levels and receivable balances as a result of the significant growth in products
revenue. Interest income decreased 15.8% to $5.5 million from $6.6 million as
the Company was paid in full on a significant note receivable during the first
quarter of fiscal year 1996.
TAXES. The effective tax rate for the year ended April 30, 1996 of 37.0%
and 1995 of 41.0% was different than the U.S. statutory rate of 35.0% primarily
due to state tax provisions.
ANNUAL AND ANNUALIZED SEVEN-MONTH PERIODS
In April 1994, the Company changed its fiscal year from September 30 to
April 30. Therefore, the Company is using annualized information for the seven
months ended April 30, 1994 ("1994") for purposes of comparison to the year
ended April 30, 1995 ("1995") and the year ended September 30, 1993 ("1993").
The annualized information for the period ended April 30, 1994 does not
represent actual operating results that would have been achieved for a full
fiscal year.
FISCAL YEAR ENDED APRIL 30, 1995 AS COMPARED TO THE ANNUALIZED SEVEN MONTHS
ENDED APRIL 30, 1994
PRODUCTS. Revenue increased 41.2% in 1995 from 1994, primarily because
cash generated from the sale of the Company's U.S. franchise business enabled
the Company to meet increased customer demand through improved product stocking
levels. Gross margin increased 24.3% in 1995 from 1994 while the gross margin
percentage decreased to 9.6% in 1995 from 10.9% in 1994. This decrease was the
result of the Company's emphasis on larger customers which resulted in lower
gross margin percentages but higher sales volumes that more than offset the
associated increase in distributed costs.
NETWORKING. Revenue increased 89.0% in 1995 from 1994 due to a significant
increase in the Company's capacity to meet increased demand for value-added
networking services. This increase in capacity was a result of the Company's
investments in hiring and training systems engineers in prior periods. Gross
margin increased 132.4% in 1995 from 1994. Gross margin percentage increased to
41.2% in 1995 from 33.5% in 1994 as a result of the increased utilization of the
Company's systems engineers.
SUPPORT SERVICES. Revenue decreased 0.3% in 1995 from 1994. Gross margin
decreased 2.7% in 1995 from 1994. Gross margin percentage decreased to 42.0% in
1995 from 43.0% in 1994, as a result of annual wage rate increases which were
not offset by increased revenue.
OTHER SERVICES. Revenue increased 118.7% in 1995 from 1994. This increase
is primarily attributable to the fees derived from the Merisel FAB distribution
services agreement, which began in February 1994. Gross margin increased 126.0%
in 1995 from 1994. Gross margin percentage increased to 82.5% in 1995 from 79.9%
in 1994 resulting from an increase in revenue without a commensurate increase in
cost of services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 9.2% in 1995 from 1994. Selling, general and
administrative expenses as a percentage of total revenue decreased to 13.2% in
1995 from 16.6% in 1994, due to the cost reduction efforts to consolidate sales
administration activities and to the effect of higher volumes of product and
networking that more than offset the increase in associated fixed costs.
OPERATING INCOME (LOSS) Operating income increased to $28.1 million in
1995 from an operating loss in 1994 as the decline in selling, general and
administrative expenses as a percentage of total revenue and the increase in
networking gross margin percentage more than offset the decline in the products
gross margin percentage.
INTEREST. Interest expense increased 48.5% in 1995 from 1994 due
principally to higher borrowings related to increased inventory levels and
receivable balances as a result of the significant growth in
<PAGE>
products revenue, combined with increases in the prime rate throughout calendar
1994. Interest income during 1994 consisted primarily of earnings on a long-term
note receivable. Interest income during 1995 consisted primarily of early pay
discounts.
TAXES. The effective tax rate for 1995 of 41.0% and 1994 of 40.0% was
different than the U.S. statutory rate of 35.0% primarily due to the state tax
provision and benefit, respectively.
ANNUALIZED SEVEN MONTHS ENDED APRIL 30, 1994 AS COMPARED TO THE FISCAL YEAR
ENDED SEPTEMBER 30, 1993
PRODUCTS. Revenue decreased 10.1% in 1994 from 1993 primarily due to
limitations on product stocking levels resulting from working capital
constraints. Gross margin decreased 17.5% in 1994 from 1993. Gross margin
percentage also decreased to 10.9% in 1994 from 11.8% in 1993.
NETWORKING. Revenue increased 7.7% in 1994 from 1993 due to the increased
demand for the Company's high-end, value-added networking services. Gross margin
decreased 25.0% in 1994 from 1993. Gross margin percentage declined to 33.5% in
1994 from 48.1% in 1993 as a result of costs associated with hiring and training
new systems engineers in anticipation of the future growth in networking
revenue.
SUPPORT SERVICES. Revenue decreased 8.3% in 1994 from 1993 due to the
elimination by the Company of several large contracts. Gross margin decreased
1.3% in 1994 from 1993. Gross margin percentage increased to 43.0% in 1994 from
39.9% in 1993, due to higher utilization of field engineers.
OTHER SERVICES. Revenue increased 193.7% in 1994 from 1993 due to the
inclusion of fees derived from the Merisel FAB distribution services agreement.
Gross margin significantly increased in 1994 from 1993. Gross margin percentage
increased to 79.9% in 1994 from 46.4% in 1993 due to the implementation of the
Merisel FAB distribution services agreement.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 7.9% in 1994 from 1993. Selling, general and
administrative expenses as a percentage of total revenue increased slightly to
16.6% in 1994 from 16.5% in 1993.
OPERATING LOSS. The operating loss was significantly reduced in 1994 from
1993 as the increase in other services gross margin percentage due to the new
Merisel FAB agreement more than offset the decrease in products and networking
gross margin.
INTEREST. Interest expense decreased 4.9% in 1994 from 1993. Interest
income during 1994 and 1993 consisted primarily of earnings on a long-term note
receivable.
TAXES. The effective income tax rate for the seven months ended April 30,
1994 of 40.0% was different than the U.S. statutory rate of 35.0% due primarily
to the state tax provision. The effective tax rate for 1993 of 26.4% was lower
than the U.S. statutory rate of 34.0% primarily due to unbenefitted current year
losses partially offset by state tax benefits.
DISCONTINUED OPERATIONS
The Company disposed of most of its franchise business during 1994. The
largest of these sales occurred on January 31, 1994, when the Company sold
certain assets and liabilities of its United States franchise business,
including all domestic franchise agreements, Datago distribution agreements and
the right to the "ComputerLand" name and trademark within the United States to
Merisel FAB (see Note 2 of Notes to Consolidated Financial Statements).
<PAGE>
DEFERRED TAX ASSETS
At April 30, 1996 and 1995, the Company has recorded net deferred tax
assets of $31.3 and $41.4 million respectively. The full realization of the
deferred tax assets carried at April 30, 1996 is dependent upon the Company
achieving future pretax earnings, prior to the expiration of the net operating
loss carryforwards, of $84.7 million. The net operating loss carryforwards
expire in the years 2000 through 2010. Management believes that sufficient
taxable income will be generated from operations to realize the net deferred tax
assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has utilized its line of credit with IBMCC and its operating
profits as well as cash proceeds from the issuance of Common Stock and the sale
of its franchise business to fund its significant revenue growth and working
capital requirements, to make payments on its long-term debt and to purchase
capital equipment.
The Company currently has a $450 million line of credit under the
Financing Program Agreement with IBMCC. At April 30, 1996, the Company had
$386 million outstanding under this facility of which $97 million is included
in accounts payable and $289 million is classified as long-term debt.
Borrowings under the line of credit are subject to certain borrowing base
limitations and are secured by portions of the Company's inventory, accounts
receivable and certain other assets. The line of credit currently has a term
expiring October 31, 1997 and is renewable thereafter for successive
six-month periods. IBMCC may terminate the line of credit at any time upon
90 days' notice to the Company. In the event of such termination, the
outstanding borrowings under the Financing Program Agreement mature at the
end of the term of the line of credit. As of May 1, 1996 amounts borrowed
under the line of credit bear interest at prime minus 0.50%.
In March 1996, the Company completed an initial public offering selling
9,215,770 shares of Common Stock and raising $83.4 million after selling
expenses and underwriting discounts and commissions. The Company used the
proceeds of the offering primarily to repay amounts borrowed under the line of
credit with IBMCC.
In January 1994, the Company sold certain assets and liabilities of its
U.S. franchise business to Merisel FAB for $80.2 million in cash plus additional
contingent consideration. In February 1996, the Company received an additional
$14.6 million from the sale in settlement of the contingent consideration.
Pursuant to its distribution and services agreement, the Company continues to
supply product to Merisel FAB for which it earns a monthly distribution fee.
Approximately one half of the Company's inventory balance is maintained to
fulfill the Company's obligation under the distribution services agreement.
Pursuant to such agreement, Merisel FAB is obligated to pay the Company for its
daily purchases within two business days.
The Company's working capital increased to $315.7 million at April 30, 1996
from $267.9 million at April 30, 1995. As a result of the initial public
offering and improved profitability the Company's debt to equity ratio improved
to 2.3 at April 30, 1996 from 15.3 at April 30, 1995. During fiscal year 1996,
the Company's operating activities used cash of $21.5 million primarily due to
significant increases in inventory and accounts receivable partially offset by
an increase in accounts payable. The increases were in support of and as a
result of higher levels of product sales. The Company increased its capital
expenditures to $15.6 million during fiscal year 1996 primarily due to the
Company's commitment to develop and expand its automated systems. The Company
plans to continue to make significant investments in its automated systems and
its capital equipment during fiscal year 1997.
Effective May 24, 1996, the Company acquired substantially all of the
assets and liabilities of the Western and Southwest Regions of Dataflex
Corporation. The Company paid $37.0 million against an estimated purchase price
of $42.0 million. In June, 1996, the Company entered into an agreement to
acquire Mentor Technologies LTD, an Ohio limited partnership providing
information technology
<PAGE>
training and education. In addition to the Dataflex and Mentor Technologies
acquisitions, the Company continues to pursue the acquisition of other companies
that sell products and services that either complement or expand its existing
business.
The Company intends to continue to finance a significant portion of its
working capital needs through credit facilities. The Company believes that cash
generated from operations and credit facilities will be sufficient to meet its
cash requirements and fund its planned growth through at least the end of fiscal
1997.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
VANSTAR CORPORATION
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Vanstar Corporation
We have audited the accompanying consolidated balance sheets of Vanstar
Corporation as of April 30, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for the years ended
April 30, 1996 and 1995, the seven month period ended April 30, 1994 and the
year ended September 30, 1993. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Vanstar
Corporation at April 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for years ended April 30, 1996 and 1995, the seven
month period ended April 30, 1994 and the year ended September 30, 1993, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Jose, California
June 10, 1996
<PAGE>
VANSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
APRIL 30,
1996 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 14,498 $ 7,761
Receivables, net of allowance for doubtful accounts of
$14,812 and $12,326 at April 30, 1996 and 1995, respectively 298,484 261,308
Inventories 350,406 298,686
Deferred income taxes 25,750 35,779
Prepaid expenses and other current assets 2,432 1,193
-------- --------
Total current assets 691,570 604,727
Property and equipment, net 23,183 19,832
Other assets, net 48,899 39,296
Goodwill, net of accumulated amortization of $3,453
and $1,726 at April 30, 1996 and 1995, respectively 39,713 41,440
-------- --------
$803,365 $705,295
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $305,374 $263,197
Accrued liabilities 41,586 39,110
Deferred revenue 27,109 26,883
Current maturities of long-term debt 1,759 7,685
-------- --------
Total current liabilities 375,828 336,875
Long-term debt, less current maturities 293,007 337,750
Other long-term liabilities 7,477 8,081
Commitments and contingencies - -
STOCKHOLDERS' EQUITY:
Preferred stock - 153
Common stock:
Class A; $.001 par value: 100,000,000 shares authorized,
40,475,144 shares issued and outstanding at April 30, 1996;
50,000,000 shares authorized, 7,323,508 issued and
outstanding at April 30, 1995 40 7
Class B; $.001 par value; no shares authorized, issued or
outstanding at April 30, 1996; 18,800,000 shares authorized,
3,708,205 issued and outstanding at April 30, 1995 - 4
Additional paid-in capital 115,097 24,768
Retained earnings (accumulated deficit) (since a deficit
elimination of $78,448 at April 30, 1994) 11,916 (2,343)
-------- --------
Total stockholders' equity 127,053 22,589
-------- --------
$803,365 $705,295
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VANSTAR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
SEVEN
MONTHS YEAR
YEAR ENDED APRIL 30, ENDED ENDED
------------------------- APRIL 30, SEPTEMBER 30,
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Products $1,578,298 $1,187,392 $ 490,576 $ 935,165
Services 226,515 198,000 95,938 164,648
---------- ---------- ---------- ----------
Total revenue 1,804,813 1,385,392 586,514 1,099,813
---------- ---------- ---------- ----------
Cost of revenue:
Products 1,430,404 1,073,879 437,316 824,514
Services 129,482 100,975 52,196 97,275
---------- ---------- ---------- ----------
Total cost of revenue 1,559,886 1,174,854 489,512 921,789
---------- ---------- ---------- ----------
Gross margin 244,927 210,538 97,002 178,024
Selling, general and administrative expenses 201,880 182,411 97,436 181,320
---------- ---------- ---------- ----------
Operating income (loss) 43,047 28,127 (434) (3,296)
Interest income 5,539 6,577 1,608 849
Interest expense (35,804) (32,555) (12,789) (23,045)
---------- ---------- ---------- ----------
Income (loss) from continuing operations
before income taxes 12,782 2,149 (11,615) (25,492)
Income tax benefit (provision) (4,729) (881) 4,646 6,741
---------- ---------- ---------- ----------
Income (loss) from continuing operations 8,053 1,268 (6,969) (18,751)
Income from operations of discontinued
businesses (less income taxes of $3,693
in 1994 and $6,811 in 1993) - - 6,426 14,258
Gain on disposal of discontinued businesses
(less income taxes of $5,400 in 1996 and
$10,706 in 1994 and $0 in 1993) 9,194 - 45,048 247
---------- ---------- ---------- ----------
Net income (loss) $ 17,247 $ 1,268 $ 44,505 $ (4,246)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Pro forma net income per share:
Continuing operations $ 0.23 $ 0.04
Discontinued operations 0.27 -
---------- ----------
Total pro forma net income per share $ 0.50 $ 0.04
---------- ----------
---------- ----------
Shares used in pro forma per share calculation 34,250 32,486
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VANSTAR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK A COMMON STOCK B
---------------------------- ---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1992 9,766 $ 28,495 4,118 $ 4 3,708 $ 4
Issuance of Class A Common Stock - - 3,267 3 - -
Amortization of deferred compensation - - - - - -
Issuance of warrants - - - - - -
Translation adjustments - - - - - -
Net loss - - - - - -
Dividends - - - - - -
------------- ------------- ------------- ------------- ------------- -------------
BALANCE AT SEPTEMBER 30, 1993 9,766 28,495 7,385 7 3,708 4
Conversion of Class A, C, and D
Preferred Stock and accrued dividends
to Class F Preferred Stock 5,543 (28,342) - - - -
Payment on shareholder note receivable - - - - - -
Issuance of Class A Common Stock - - 75 - - -
Translation adjustments - - - - - -
Sale of international businesses - - - - - -
Net income - - - - - -
Dividends - - - - - -
Quasi-reorganization:
Revaluation adjustments, net - - - - - -
Transfer from accumulated deficit - - - - - -
------------- ------------- ------------- ------------- ------------- -------------
BALANCE AT APRIL 30, 1994 15,309 153 7,460 7 3,708 4
Redemption of Class A Common Stock - - (154) - - -
Issuance of Class A Common Stock - - 17 - - -
Redemption of Class E Preferred Stock - - - - - -
Net income - - - - - -
Dividends - - - - - -
------------- ------------- ------------- ------------- ------------- -------------
BALANCE AT APRIL 30, 1995 15,309 153 7,323 7 3,708 4
Redemption of Class A Common Stock - - (103) - - -
Issuance of warrants - - - - - -
Conversion of Class F Preferred Stock
and Senior Preferred Stock to
Class A Common Stock (15,309) (153) 15,309 15 - -
Conversion of Class B Common Stock to
Class A Common Stock - - 3,708 4 (3,708) (4)
Conversion of Warrants to Class A
Common Stock - - 4,996 5 - -
Issuance of Class A Common Stock - - 9,216 9 - -
Accrued Dividends Forgiven -
Senior Preferred Stock - - - - - -
Exercise of Options - - 26 - - -
Net income - - - - - -
Dividends - - - - - -
------------- ------------- ------------- ------------- ------------- -------------
BALANCE AT APRIL 30, 1996 - $ - 40,475 $ 40 - $ -
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
RETAINED
STOCKHOLDER EARNINGS
NOTE ADDTL. (ACCUM. TRANS.
RECEIVABLE PAID-IN CAPTL. DEFICIT) ADJUST. TOTAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1992 $ - $ 84,758 $ (112,434) $ (143) $ 684
Issuance of Class A Common Stock (1,846) 17,395 - - 15,552
Amortization of deferred compensation - 9 - - 9
Issuance of warrants (154) 3,269 - - 3,115
Translation adjustments - - - 1,411 1,411
Net loss - - (4,246) - (4,246)
Dividends - - (3,941) - (3,941)
------------- ------------- ------------- ------------- -------------
BALANCE AT SEPTEMBER 30, 1993 (2,000) 105,431 (120,621) 1,268 12,584
Conversion of Class A, C, and D
Preferred Stock and accrued dividends
to Class F Preferred Stock - 28,342 - - -
Payment on shareholder note receivable 1,000 - - - 1,000
Issuance of Class A Common Stock - - - - -
Translation adjustments - - - (86) (86)
Sale of international businesses - - - (1,182) (1,182)
Net income - - 44,505 - 44,505
Dividends - - (2,332) - (2,332)
Quasi-reorganization:
Revaluation adjustments, net - (29,692) - - (29,692)
Transfer from accumulated deficit - (78,448) 78,448 - -
------------- ------------- ------------- ------------- -------------
BALANCE AT APRIL 30, 1994 (1,000) 25,633 - - 24,797
Redemption of Class A Common Stock 1,000 (1,000) - - -
Issuance of Class A Common Stock - - - - -
Redemption of Class E Preferred Stock - 135 - - 135
Net income - - 1,268 - 1,268
Dividends - - (3,611) - (3,611)
------------- ------------- ------------- ------------- -------------
BALANCE AT APRIL 30, 1995 - 24,768 (2,343) - 22,589
Redemption of Class A Common Stock - - - - -
Issuance of warrants - 500 - - 500
Conversion of Class F Preferred Stock
and Senior Preferred Stock to
Class A Common Stock - 138 - - -
Conversion of Class B Common Stock to
Class A Common Stock - - - - -
Conversion of Warrants to Class A
Common Stock - (5) - - -
Issuance of Class A Common Stock - 83,382 - - 83,391
Accrued Dividends Forgiven -
Senior Preferred Stock - 6,162 - - 6,162
Exercise of Options - 152 - - 152
Net income - - 17,247 - 17,247
Dividends - - (2,988) - (2,988)
------------- ------------- ------------- ------------- -------------
BALANCE AT APRIL 30, 1996 $ - $ 115,097 $ 11,916 $ - $ 127,053
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statments
<PAGE>
VANSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
<TABLE>
<CAPTION>
SEVEN
MONTHS YEAR
ENDED ENDED
YEAR ENDED APRIL 30, APRIL 30, SEPTEMBER 30,
------------------------- ---------- -------------
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 17,247 $ 1,268 $ 44,505 $ (4,246)
Adjustments:
Depreciation and amortization 9,775 9,997 9,248 17,883
Provision for receivables and investments 14,393 95 356 5,287
Gain on sale of building - - - (1,398)
Gain on disposal of discontinued businesses (14,594) - (55,754) (247)
Changes in operating assets and liabilities:
Receivables (51,193) (58,354) (19,092) 53,253
Inventories (51,720) (38,900) (86,044) 2,504
Prepaid expenses and other assets (2,462) (1,257) 1,505 (4,409)
Deferred income taxes 10,029 (1,097) 9,710 (1,730)
Accounts payable 42,177 37,556 (19,679) (9,871)
Accrued and other liabilities 4,865 1,070 (21,713) (34,890)
---------- ---------- ---------- ----------
Total adjustments (38,730) (50,890) (181,463) 26,382
---------- ---------- ---------- ----------
Net cash provided by (used in) operating activities (21,483) (49,622) (136,958) 22,136
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of businesses 14,594 - 78,401 3,097
Capital expenditures (15,583) (12,835) (3,099) (6,383)
Proceeds from sale of building - - - 2,939
Repayment of notes receivable - 9,722 6,213 6,327
---------- ---------- ---------- ----------
Net cash provided by (used in) investing activities (989) (3,113) 81,515 5,980
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (7,836) (12,342) (16,322) (10,120)
Borrowings under line of credit, net of payments (46,999) 73,287 68,123 (33,032)
Issuance of common stock and warrants 84,044 - - 14,740
Redemption of preferred stock and accrued dividends - (4,654) - -
Dividends paid - (1,000) - -
---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities 29,209 55,291 51,801 (28,412)
NET INCREASE (DECREASE) IN CASH 6,737 2,556 (3,642) (296)
Cash at beginning of the period 7,761 5,205 8,847 9,143
---------- ---------- ---------- ----------
CASH AT END OF THE PERIOD $ 14,498 $ 7,761 $ 5,205 $ 8,847
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest $ 38,761 $ 31,352 $ 13,094 $ 24,873
Income taxes, net of refunds 625 1,424 5 (349)
NON-CASH INVESTING ACTIVITIES:
Equipment acquired under capital leases 4,293 - - 699
NON-CASH FINANCING ACTIVITIES:
Payment of accrued dividends with common stock - - - 3,462
Conversion of accrued dividends into a note payable - 2,462 - -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Vanstar Corporation (the "Company") is a leading provider of services and
products designed to build and manage personal computer network infrastructures
primarily for Fortune 1000 companies and other large enterprises. The Company
provides customized, integrated solutions for its customers' network
infrastructure needs by combining a comprehensive offering of value-added
services with its expertise in sourcing and distributing PC's, network products,
computer peripherals and software from a variety of vendors. The consolidated
financial statements include the accounts of Vanstar Corporation and all
subsidiaries. All significant intercompany balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Products revenue is primarily derived from the sale of computer hardware,
software, peripherals and communications devices manufactured by third parties
and sold by the Company, principally to implement integration projects.
Services revenue is derived from value-added services, including services
focused on the server and communication segments of the PC network
infrastructure, services performed for the desktop and fees earned on a
distribution services agreement. Product sales are recognized at the time of
shipment. Revenue from services is recognized as services are performed or
ratably if performed over a service contract period. Deferred revenue primarily
represents unrecognized service revenue.
CHANGE OF COMPANY NAME AND FISCAL YEAR END
The Company changed its name from "ComputerLand Corporation" to "Vanstar
Corporation," effective March 21, 1994, in conjunction with the sale of its U.S.
franchise business, including the right to the "ComputerLand" name and trademark
within the United States.
The Company also changed its fiscal year end during fiscal 1994 from
September 30 to April 30. Accordingly, the Company's transition period ending
April 30, 1994 includes only seven months from October 1, 1993 to April 30,
1994.
FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated balance sheets for cash,
receivables, and accounts payable approximate the respective fair values due to
the short maturities of these instruments. The long-term debt consists of
variable rate instruments at terms the Company believes would be available if
similar financing were obtained from another party. As such, carrying amounts
also approximate their fair value.
INVENTORIES
Inventory for resale and spare parts inventory are stated at the lower of
cost (first-in, first-out method) or market. Periodically, the Company assesses
the appropriateness of the inventory valuations giving consideration to
obsolete, slow-moving and nonsalable inventory.
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the related assets as
follows:
Furniture and equipment 3 to 5 years
Leasehold improvements Lesser of term of lease or useful life
Building 25 years
ACQUISITION ACCOUNTING
All acquisitions have been accounted for using the purchase method whereby
the purchase price, including liabilities assumed, is allocated based upon the
fair value of the tangible and intangible assets of the acquired entity. The
Company's consolidated statements of operations include the results of
operations of the acquired businesses subsequent to the purchase dates. Goodwill
represents the excess of cost over the net assets of acquired businesses and is
amortized using the straight-line method over twenty-five years.
The carrying amount of goodwill was adjusted to fair value at April 30,
1994 in connection with the Company's quasi-reorganization. Periodically, the
Company assesses the appropriateness of the carrying amount of goodwill and the
amortization periods based on the undiscounted value of the current and
anticipated future cash flows and projected profitability of the acquired
business. If there are indicated impairments, a write down is recorded to the
extent the carrying amount exceeds the fair value.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued two standards
which will be applicable to the Company but which the Company has not yet
adopted: Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
and Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. The impairment standard is not expected to have a
significant impact on the Company. The Company has not yet determined which of
the acceptable approaches it will use under the stock compensation standard.
Adoption of certain approaches under the stock compensation standard could
result in noncash charges, which if made are not expected to be material. At a
minimum, the standard will require disclosures about the fair value of the
employee stock options.
2. DISCONTINUED OPERATIONS
The Company disposed of primarily all of its worldwide franchise business
during the seven months ended April 30, 1994 and the fiscal year ended September
30, 1993. Combined revenues of the franchise segment were $0.4 billion and $1.1
billion during the seven months ended April 30, 1994 and the fiscal year ended
September 30, 1993, respectively.
U.S. FRANCHISE DIVISION
On January 31, 1994, pursuant to an asset purchase agreement, the Company
sold certain assets and liabilities of its U.S. franchise business, including
all domestic franchise agreements, Datago distribution agreements and the right
to the "ComputerLand" name and trademark within the United States to Merisel
FAB, a wholly-owned subsidiary of Merisel, Inc. ("Merisel"). The purchase price
was $80.2 million in cash plus additional consideration based upon the
cumulative volume of product sold during the two-year period commencing
February 1, 1994. The Company recorded a gain on the sale of $32.5 million, net
of related disposition costs and taxes during the seven-month period ended April
30, 1994. At April 30,
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1995, no additional consideration was recorded based on the inability to
determine the amount of additional consideration earned, if any.
Concurrent with the sale, the Company entered into a distribution services
agreement with Merisel FAB. Pursuant to this agreement, the Company continues to
supply product and provide certain logistics and other support services to
Merisel FAB. The Company receives a monthly distribution fee for such services.
The Company also granted Merisel FAB $20.0 million in extended, interest-bearing
credit on its product purchases.
Effective January 31, 1996, the Company and Merisel FAB signed amendments
to the asset purchase agreement and distribution services agreement. The
amendments provide that: the term of the distribution services agreement be
extended through April 30, 1997; the distribution fee be reduced retroactive to
April 1, 1995; the additional consideration be fixed at $14.6 million; the
maximum amount of the extended credit be increased by $11.1 million,
which will be reduced in monthly installments from February 1996 through July
1997; and the original amount of interest-bearing credit of $20.0 million be
extended and reduced in three equal monthly installments from May 15, 1997
through July 15, 1997.
As a result of announcements made by Merisel on February 20, 1996, the
Company decided to record a $31.1 million provision as of January 31, 1996
against its extended credit due from Merisel FAB. As of April 30, 1996 the
Company reversed a portion of such provision (see Note 15-Subsequent Events).
INTERNATIONAL SUBSIDIARIES
On April 29, 1994, the Company sold several of its international
subsidiaries which operated franchise businesses primarily in Europe, resulting
in a net gain of approximately $12.6 million. On June 28, 1993, the Company sold
the assets of a subsidiary in New Zealand for approximately $2.2 million and
recognized a gain of $0.3 million.
3. QUASI-REORGANIZATION
Effective April 30, 1994, and in connection with the Company's decision to
dispose of its franchise business, the Company elected to adjust its balance
sheet in accordance with quasi-reorganization accounting principles. A
quasi-reorganization is an elective accounting procedure intended to restate
assets and liabilities to fair values and eliminate any deficit in retained
earnings. The accumulated deficit at April 30, 1994 of $78.4 million was
eliminated against additional paid-in capital. The adjustments to fair value
included $22.7 million of non-cash write-downs of goodwill and other intangible
assets and the write-down of $7.0 million of property, plant and equipment.
Management utilized the services of outside experts in determining the fair
values. The carrying values of all other assets and liabilities at April 30,
1994 were determined to approximate their fair values and no further adjustment
to the historical basis was required. Management believes that those adjustments
reflected the significant changes in the evolution of the Company and provided a
more appropriate basis to report future operating results.
4. INVENTORIES
Inventories consist of the following:
APRIL 30,
------------------------
(IN THOUSANDS) 1996 1995
--------- ---------
Inventory for resale $ 348,419 $ 296,458
Less reserve for obsolete inventory (12,640) (11,435)
--------- ---------
335,779 285,023
Spare parts (current) 14,627 13,663
--------- ---------
$ 350,406 $ 298,686
--------- ---------
--------- ---------
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
APRIL 30,
-----------------------
(IN THOUSANDS) 1996 1995
-------- --------
Furniture and equipment $ 57,093 $ 46,609
Building and improvements 14,377 13,707
-------- --------
71,470 60,316
Less accumulated depreciation and amortization (48,287) (40,484)
-------- --------
$ 23,183 $ 19,832
-------- --------
-------- --------
Depreciation and amortization associated with property and equipment was
$7.7 million, $8.3 million, $7.3 million, and $13.9 million for the fiscal years
ended April 30, 1996 and 1995, the seven months ended April 30, 1994 and the
year ended September 30, 1993.
6. OTHER ASSETS
Other assets consist of the following:
APRIL 30,
-----------------------
(IN THOUSANDS) 1996 1995
-------- --------
Spare parts (non-current) $ 28,883 $ 27,324
Capitalized software, net 13,353 4,974
Deferred income taxes 5,593 5,593
Other 1,070 1,405
-------- --------
$ 48,899 $ 39,296
-------- --------
-------- --------
Capitalized software represents the costs associated with development of
software for the Company's internal use. Such costs are capitalized in
accordance with Statement of Financial Accounting Standards No. 86, ACCOUNTING
FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED,
and are amortized over the remaining useful economic life of the software of up
to five years. Accumulated amortization at April 30, 1996 and 1995 was $0.3 and
$0.0 million, respectively.
7. LONG-TERM DEBT
Long-term debt consists of the following:
APRIL 30,
-----------------------
(IN THOUSANDS) 1996 1995
-------- --------
Line of credit $289,072 $336,071
Note to stockholder, due January 1996 - 4,578
9.75% note to stockholder - 2,463
9.25% note secured by real property, payable in
monthly installments of $26 through April 2003 1,356 1,721
Other (including obligations under capital leases) 4,338 602
-------- --------
Total outstanding debt 294,766 345,435
Less current maturities (1,759) (7,685)
-------- --------
$293,007 $337,750
-------- --------
-------- --------
The line of credit consists of amounts borrowed under a financing agreement
with IBM Credit Corporation ("IBMCC"), an affiliate of one of the Company's
principal vendors. The line of credit is established for $450 million, is
renewable every six months, is secured by portions of the Company's inventory,
accounts receivable and certain other assets and is terminable by the Company or
IBMCC at anytime upon 90 days' written notice. In the event of such termination,
the outstanding borrowings are not
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
due until the end of the term, currently expiring on October 31, 1997. The
financing agreement contains various terms and covenants which require the
Company to maintain certain levels of tangible net worth and certain other
financial restrictions. The financing agreement also limits the Company's
ability to pay cash dividends on its Common Stock. At April 30, 1996, the
Company had $386 million outstanding under this facility of which $97 million is
included in accounts payable and $289 million is classified as long-term debt.
The interest rate was prime plus 2.0% through March 31, 1995, and prime plus
1.06% from April 1, 1995 to March 31, 1996, prime plus 0.45% from April 1, 1996
to April 30, 1996 and prime minus 0.50% thereafter.
Aggregate maturities of long-term debt, excluding the line of credit, are
approximately $1.7 million, $1.7 million, $1.2 million, and $0.3 million,
respectively each of the succeeding four years, and $0.8 million thereafter.
8. CONCENTRATION OF CREDIT RISK
The Company purchases multi-vendor PC products for sale primarily to
end-users and to customers of Merisel FAB, and provides various PC-related
services. Although receivables from end-users are uncollateralized, the credit
risk is limited due to the large number and diversity of customers comprising
the Company's customer base. During fiscal 1993 and the seven months ended
April 30, 1994, no individual customer accounted for more than 10% of the
Company's total revenue. During fiscal year 1996 and 1995, Microsoft
Corporation accounted for 12.0%, and 10.8%, respectively, of the Company's
total revenue.
9. LEASE COMMITMENTS
The Company leases certain administrative, warehousing and other facilities
under operating leases and equipment under a combination of operating and
capital leases. Most of the Company's operating leases are subject to annual
escalation clauses ranging from two to five percent. Several facilities under
operating leases have been sublet. The future minimum lease payments on
noncancelable operating leases with an initial term in excess of one year and
future sublease income under noncancelable subleases as of April 30, 1996 are as
follows:
MINIMUM
LEASE PAYMENT SUBLEASE INCOME
------------- ---------------
(IN THOUSANDS)
1997 $ 12,251 $ 820
1998 7,714 348
1999 4,234 43
2000 1,158 -
2001 540 -
Thereafter 939 -
--------- ---------
$ 26,836 $ 1,211
--------- ---------
--------- ---------
In connection with leases on facilities associated with acquisitions, the
Company established reserves for future lease payments on certain duplicate or
excess facilities. The balance of these reserves at April 30, 1996 was
approximately $2.8 million, which has not reduced the amounts shown above.
Rental expense, under operating leases, charged to operations was
$13.8 million, $14.2 million, $8.7 million and $15.2 million during fiscal year
ended April 30, 1996 and 1995, the seven month period ended April 30, 1994 and
the fiscal year ended 1993, respectively.
The cost of assets recorded under capital leases was $4.5 million and $3.3
million at April 30, 1996 and 1995, respectively. Accumulated amortization on
such assets was $0.5 million and $2.8 million at
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
April 30, 1996 and 1995, respectively. The present value of minimum lease
payments under capital leases as of April 30, 1996 was $4.1 million.
10. STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
On March 11, 1996, the Company completed an initial public offering selling
8,000,000 shares of its Common Stock. In connection with the initial public
offering, the Company granted to the Underwriters a 30-day option to purchase up
to an additional 2,215,770 shares of Common Stock solely to cover over-
allotments, if any. The Underwriters exercised their option to purchase
1,215,770 of such shares in April 1996.
PREFERRED STOCK, COMMON STOCK AND WARRANTS
Concurrent with the consummation of the initial public offering, all
outstanding shares of Senior Preferred Stock, Class F Preferred Stock and Class
B Common Stock were converted into 19,018,088 shares of Common Stock.
Additionally, all outstanding warrants were exchanged for 4,995,691 shares of
Common Stock, all accrued dividends payable to the holder of the Senior
Preferred Stock totaling $6.2 million were forgiven and all such stock and
warrants converted to Common Stock were canceled.
As of April 30, 1996, 15,000,000 shares of undesignated Preferred Stock,
$0.01 par value are authorized; no shares of this newly authorized class have
been issued.
At April 30, 1996, the Company had 6,000,000 shares of Common Stock
reserved for future issuance for the Company's stock option and stock purchase
plans and 29,800 shares of Common Stock reserved for future issuance upon the
exercise of options granted to certain of the Company's former franchisees.
STOCK OPTION PLANS
The Company has two stock option plans which provide for the issuance of
incentive stock options ("ISOs"), stock options that are non-qualified for
Federal income tax purposes ("NQSOs") and stock appreciation rights ("SARs").
The 1988 Stock Option Plan was adopted in July 1988 and provides for the
issuance of ISOs, NQSOs and SARs to key employees and directors. The 1993 Stock
Option Plan was adopted in April 1993 and provides for the issuance of shares of
common stock, ISOs, NQSOs or SARs to highly compensated, managerial employees,
officers and directors. The exercise price of the ISOs under both plans may not
be less than 100% of the fair market value of the Common Stock at the time of
grant. Under the 1993 plan, the exercise price of the NQSOs may not be less
than 85% of the fair market value at the time of grant. At April 30, 1996, the
total number of shares of Common Stock for which options may be granted pursuant
to the 1988 and 1993 plans were 2,500,000 and 2,500,000, respectively. Under
both plans, options generally become exercisable ratably over a four or five
year period and expire in ten years. At April 30, 1996, options to purchase
1,403,034 shares were exercisable. At April 30, 1996, no SARs had been issued.
Effective as of May 1, 1995, the Company offered to all current employees
who hold options, the right to exchange their options for new options that are
exercisable at a price of $3.00 per share. The new options are subject to a new
four-year vesting schedule commencing May 1, 1995. In connection with this
transaction, 1,164,505 options were exchanged.
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes option activity through April 30, 1996 under
both plans:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------
OPTIONS EXERCISE AGGREGATE
AVAILABLE FOR PRICE PER EXERCISE
GRANT SHARES SHARE PRICE
----- ------ ----- -----
<S> <C> <C> <C> <C>
Balance at September 30, 1992 119,421 1,803,421 $ 0.18 - 6.00 $ 9,627,876
Granted (61,800) 61,800 6.00 370,800
Canceled 128,390 (128,390) 5.55 - 6.00 (746,118)
Expired 101,876 (101,876) 5.55 - 6.00 (572,499)
------------ ------------ ------------- ------------
Balance at September 30, 1993 287,887 1,634,955 0.18 - 6.00 8,680,059
Increase in authorized shares 429,800 - - -
Granted (12,500) 12,500 6.00 75,000
Exercised - (74,380) 0.18 (13,388)
Canceled 22,324 (22,324) 5.55 - 6.00 (130,536)
Expired 132,822 (132,822) 5.55 - 6.00 (745,459)
------------ ------------ ------------- ------------
Balance at April 30, 1994 860,333 1,417,929 0.18 - 6.00 7,865,676
Granted (883,726) 883,726 6.00 5,302,356
Canceled 69,964 (69,964) 5.55 - 6.00 (417,775)
Expired 70,147 (70,147) 5.55 - 6.00 (413,278)
------------ ------------ ------------- ------------
Balance at April 30, 1995 116,718 2,161,544 0.18 - 6.00 12,336,979
Increase in authorized shares 2,677,158 - - -
Exercised - (26,125) 3.00 - 6.00 (152,250)
Granted (2,966,943) 2,966,943 3.00 - 10.00 12,896,829
Canceled 1,229,630 (1,229,630) 3.00 - 6.00 (7,139,304)
Expired 55,247 (55,247) 5.55 - 6.00 (315,565)
------------ ------------ ------------- ------------
Balance at April 30, 1996 1,111,810 3,817,485 $0.18 - 10.00 $ 17,626,689
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
</TABLE>
STOCK PURCHASE PLAN
On March 11, 1996, the Company adopted an employee purchase plan (the
"Stock Purchase Plan") allowing eligible employees to purchase shares of the
Company's Common Stock. The Stock Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Code. The total number
of shares of Common Stock authorized for issuance under the plan is 1,000,000.
All full-time employees of the Company are eligible to participate, subject to
certain limited exceptions. The Stock Purchase Plan provides a means for the
Company's employees to purchase stock through payroll deductions of up to 10% of
their gross compensation. The purchase price for shares offered under the Stock
Purchase Plan is equal to 85% of the lower of the closing price of the Common
Stock on the first day of the six month offer period or the last day of the six
month offer period. The initial offer period is from March 11, 1996 to August
31, 1996. At April 30, 1996, no shares were issued to employees participating
in the plan.
11. EMPLOYEE BENEFITS
The Company provides a savings plan under section 401(k) of the Internal
Revenue Code to substantially all domestic employees who are over the age of 21.
Employees can contribute up to 12% of their annual salary to the plan up to a
maximum allowed by the Internal Revenue Code. The Company will match 100% of the
employee's contributions up to $200 not to exceed the maximum of 1% of the
employee's eligible compensation. If the employee contributes more than $200 to
the plan, the Company will contribute an amount equal to the greater of $200 or
25% of the employee's contribution up to a maximum of 1% of the employee's
eligible compensation. The amount charged to expense for the matching
contribution was $0.7 million, $0.7 million, $0.5 million, and $0.7 million for
the fiscal years
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ended April 30, 1996 and 1995, the seven month period ended April 30, 1994, and
the year ended September 30, 1993, respectively.
12. INCOME TAXES
The income tax benefit (provision) computed under Statement of Financial
Accounting Standards No. 109, consists of the following:
SEVEN
MONTHS YEAR
YEAR ENDED APRIL 30, ENDED ENDED
----------------------- APRIL 30, SEPTEMBER 30,
1996 1995 1994 1993
-------- -------- -------- --------
(IN THOUSANDS)
Current:
Federal $ - $ - $ (500) $ -
State (100) (200) (500) -
Foreign - - - (260)
-------- -------- -------- --------
(100) (200) (1,000) (260)
-------- -------- -------- --------
Deferred:
Federal (8,561) (562) (7,631) 190
State (1,468) (119) (1,122) -
-------- -------- -------- --------
(10,029) (681) (8,753) 190
-------- -------- -------- --------
$(10,129) $ (881) $ (9,753) $ (70)
-------- -------- -------- --------
-------- -------- -------- --------
The income tax benefit (provision) is allocated between discontinued and
continuing operations as follows:
<TABLE>
<CAPTION>
SEVEN
MONTHS YEAR
YEAR ENDED APRIL 30, ENDED ENDED
----------------------- APRIL 30, SEPTEMBER 30
1996 1995 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Provision allocated to operations of
discontinued businesses and income on
disposal of discontinued businesses $ (5,400) $ - $(14,399) $ (6,811)
-------- -------- -------- --------
-------- -------- -------- --------
Income tax benefit (provision)
allocated to continuing operations $ (4,729) $ (881) $ 4,646 $ 6,741
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Significant components of deferred tax liabilities and assets consist of
the following:
<TABLE>
<CAPTION>
APRIL 30,
--------------------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Capital leases $ - $ 91
Other - 106
------- --------
Total deferred tax liabilities - 197
------- --------
Deferred tax assets:
Reserves 8,220 9,504
Inventory reserves 6,446 9,441
Other expenses, not currently deductible 2,751 6,454
Net operating loss carryforward 13,926 10,381
Other - 5,789
------- --------
Total deferred tax assets 31,343 41,569
------- --------
Total net deferred tax assets $31,343 $ 41,372
------- --------
------- --------
</TABLE>
The net operating loss carryforwards listed above expire in the years 2000
through 2010.
Realization of the total net deferred tax assets is dependent on generating
future taxable income. The full realization of the $31.3 million of deferred tax
assets carried at April 30, 1996 is dependent upon the Company achieving future
pretax earnings, prior to the expiration of the net operating loss
carryforwards, of $84.7 million. Although realization is not assured, Management
believes that sufficient taxable income will be generated through operations to
realize the net deferred tax assets. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.
Income before income taxes from foreign operations was $0.0 million,
$0.0 million, $0.9 million and, $3.4 million for fiscal years ended April 30,
1996 and 1995, the seven months ended April 30, 1994, and the fiscal year ended
September 30, 1993, respectively.
A reconciliation of the U.S. statutory income tax rate and the effective
rate of the income tax benefit (provision) allocated to continuing operations is
as follows:
<TABLE>
<CAPTION>
SEVEN
YEAR ENDED MONTHS YEAR
APRIL 30, ENDED ENDED
--------------------- APRIL 30, SEPTEMBER 30,
1996 1995 1994 1993
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Statutory tax rate at 35% (34% for 1993) $ (4,473) $ (752) $ 4,065 $ 8,667
State income taxes, net of federal benefit (536) (108) 210 725
Losses not benefited - - - (2,736)
Other 280 (21) 371 85
--------- ------- --------- ----------
$ (4,729) $ (881) $ 4,646 $ 6,741
--------- ------- --------- ----------
--------- ------- --------- ----------
</TABLE>
13. INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Pro forma net income per share and shares used in per share calculation for
fiscal year 1996 and 1995 have been presented on the consolidated statements of
income as if the conversion of the Company's
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
preferred stock and warrants had occurred at the later of the beginning of
fiscal year 1995 or the issuance date.
Both pro forma and historical income (loss) per share is computed using the
weighted average number of shares of Common Stock and dilutive common stock
equivalents outstanding during the period. Common stock equivalents are
computed on the preferred stock using the if-converted method and on the
outstanding options using the treasury stock method. During the fiscal years
ended 1995 and 1993 the effect upon the historical income (loss) per share of
common stock equivalents was antidilutive and is therefore excluded from the
calculations. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins, common stock equivalents also include amounts computed on
options and warrants issued within twelve months of the filing date as if they
were outstanding for all periods presented using the treasury stock method and
the initial public offering price.
The following is a summary of the historical income (loss) per common and
common equivalent share and historical shares used in per share calculation:
<TABLE>
<CAPTION>
SEVEN
YEAR ENDED MONTHS YEAR
APRIL 30, ENDED ENDED
--------------------- APRIL 30, SEPTEMBER 30,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Historical income (loss) per share:
Continuing operations $ 0.27 $ (0.17) $ (0.24) $ (1.89)
Discontinued operations 0.30 - 1.76 1.21
--------- ---------- ---------- -----------
Total historical income (loss) per share $ 0.57 $ (0.17) $ 1.52 $ (0.68)
--------- ---------- ---------- -----------
--------- ---------- ---------- -----------
Weighted average number of shares (IN THOUSANDS):
Common stock 14,247 11,040 11,168 9,282
Common stock equivalents 15,974 2,671 18,053 2,671
--------- ---------- ---------- -----------
Historical shares used in per share calculation 30,221 13,711 29,221 11,953
--------- ---------- ---------- -----------
--------- ---------- ---------- -----------
</TABLE>
14. LITIGATION AND CONTINGENCIES
Various legal actions arising in the normal course of business have been
brought against the Company and certain of its subsidiaries. Management believes
that the ultimate resolution of these actions will not have a material adverse
effect on the Company's financial position or results of operations, taken as a
whole.
15. SUBSEQUENT EVENTS
Effective May 24, 1996, the Company, through a wholly-owned subsidiary,
acquired certain of the assets and assumed certain of the liabilities of
Dataflex Corporation and of Dataflex's wholly-owned subsidiary, Dataflex
Southwest Corporation. The assets acquired and liabilities assumed comprise
substantially all of the assets and liabilities previously associated with the
business operations of Dataflex known as the Dataflex Western Region and
Dataflex Southwest Region. The two Dataflex regions offer PC product
distribution, service and support in the states of Arizona, California,
Colorado, New Mexico, Nevada and Utah and reported revenues of approximately
$145 million for the fiscal year ended March 31, 1996. The purchase price of
the assets and businesses acquired from Dataflex was approximately $42.0
million, subject to certain post-closing adjustments. Of this amount, the
Company paid approximately $37.0 million in cash on May 29, 1996, with the
remainder due following the completion of an audit of the assets acquired and
the liabilities assumed as of May 31, 1996 and the completion of certain other
post closing matters.
<PAGE>
VANSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On May 29, 1996, the Company entered into an agreement with a third
party under which the Company received $15.6 million in cash in exchange for
providing the third party the right to receive payments in May, June and July
1997 totaling $20.0 million out of amounts collected from the extended credit
owed to the Company by Merisel FAB. As a result of the agreement, the
Company adjusted a portion of the reserve on its extended credit from Merisel
FAB resulting in additional pre-tax income of $15.6 million during the
quarter ended April 30, 1996.
On June 5, 1996, the Company entered into an agreement to acquire Mentor
Technologies LTD, ("Mentor"), an Ohio limited partnership providing information
technology training and education. Mentor reported revenues of approximately
$5.5 million for the year ended December 31, 1995. The Company anticipates
accounting for the acquisition as a "pooling of interests" as defined by
Accounting Principals Board Opinion No. 16., BUSINESS COMBINATIONS.
Consummation of the transaction is subject to certain closing conditions and
compliance with applicable law.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated balance sheets of Vanstar Corporation as of
April 30, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years ended April 30, 1996 and
1995, the seven month period ended April 30, 1994 and the year ended
September 30, 1993, and have issued our report thereon dated June 10, 1996
(included elsewhere in this Annual Report on Form 10-K). Our audits also
included the financial statement schedule of Vanstar Corporation listed in
Item 14(a)2. This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
San Jose, California
June 10, 1996
<PAGE>
VANSTAR CORPORATION
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED
BEGINNING OF TO COSTS AND WRITE-OFFS/ BALANCE AT END OF
PERIOD EXPENSES OTHER PERIOD
------ -------- ----- ------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended September 30, 1993 $23,533 $5,287 $12,621 $16,199
Seven months ended April 30, 1994 $16,199 $356 $2,457 $14,098
Year ended April 30, 1995 $14,098 $95 $1,867 $12,326
Year ended April 30, 1996 $12,326 * $14,393 ** $8,407 $18,312
INVENTORY RESERVES
Year ended September 30, 1993 $23,698 $6,760 $17,564 $12,894
Seven months ended April 30, 1994 $12,894 $1,213 $2,660 $11,447
Year ended April 30, 1995 $11,447 $5,400 $5,412 $11,435
Year ended April 30, 1996 $11,435 $3,854 $2,649 $12,640
</TABLE>
* Includes a provision for $4.4 million against the extended
interest-bearing credit and $7.8 million against the extended credit both due
from Merisel FAB (see Notes 2 and 15 to the Notes to Consolidated Financial
Statements).
** Includes the write-off of $4.4 million of the extended interest-bearing
credit due from Merisel FAB.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required herein is hereby incorporated by reference to the
information appearing under the captions "Election of Directors," "Executive
Officers" and "Disclosure Pursuant to Section 16 of the Exchange Act" in the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required herein is hereby incorporated by reference to the
information appearing under the caption "Executive Compensation" in the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required herein is hereby incorporated by reference to the
information appearing under the caption "Security Ownership of Certain
Beneficial Owners, Directors and Management" in the Company's Proxy Statement to
be filed with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required herein is hereby incorporated by reference to the
information appearing under the caption "Certain Relationships and Related
Transactions" in the Company's Proxy Statement to be filed with the Securities
and Exchange Commission.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements:
Report of Independent Auditors
Consolidated Balance Sheets - April 30, 1996 and 1995
Consolidated Statements of Income - Years Ended April 30, 1996
and 1995, Seven Months Ended April 30, 1994 and the
Year Ended September 30, 1993
Consolidated Statements of Stockholders' Equity - Years Ended
April 30, 1996 and 1995, Seven Months Ended April 30,
1994, and the Year Ended September 30, 1993
Consolidated Statements of Cash Flows - Years Ended April 30,
1996 and 1995, Seven Months Ended April 30, 1994, and
the Year Ended September 30, 1993
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statement Schedules:
Report of Ernst & Young LLP, Independent Auditors
Supplemental Schedule II - Valuation of Qualifying Accounts,
Years Ended April 30, 1996 and 1995, Seven Months Ended
April 30, 1994, and the Year Ended September 30, 1993
(3) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT
2.1 Asset Purchase Agreement with Dataflex Corporation, Dataflex
Southwest Corporation (2)
3.1 Restated Certificate of Incorporation of the Registrant (1)
3.2 By-laws of the Registrant (1)
3.3 Certificate of Incorporation of the Registrant as in effect on
the date hereof (1)
4.1 1988 Stock Option Plan (1)
4.2 Form of Nontransferable Non-Qualified Stock Option Agreement under
the 1988 Stock Option Plan of the Registrant (1)
4.3 1993 Stock Option/Stock Issuance Plan (1)
4.4 Form of Stock Option Grant and Stock Purchase Agreement under the
1993 Stock Option Plan (1)
4.5 Employee Stock Purchase Plan (1)
10.1 Form of Indemnity Agreement between the Company and each of its
directors and certain officers (1)
10.2 Second Amended and Restated Financing Program Agreement dated
April 30, 1995, between the Registrant and IBM Credit Corporation
("IBMCC"), as amended (1)
**10.3 Distribution and Services Agreement dated January 31, 1994,
between the Registrant and Merisel FAB, Inc., as amended (1)
10.4 Amended and Restated Registration Rights Agreement dated as of
May 18, 1995, among the Registrant, NYNEX Worldwide Services
Group, Inc., Warburg, Pincus Capital Company, L.P., WP Capco,
Inc., William Y. Tauscher, Richard H. Bard and Microsoft
Corporation (1)
10.5 Lease Agreement dated as of July 14, 1988, entered into between
the Registrant and Rosewood Associates (1)
<PAGE>
10.6 Real Estate Mortgage dated as of April 6, 1978, entered into
between Danners, Inc. and New England Mutual Life Insurance
Company and the subsequent Contract for Purchase of Real
Estate/Offer to Purchase Real Estate dated as of April 26, 1991,
entered into between the Registrant and Cheyenne Plaza Associates
(1)
10.7 Lease Agreement dated as of December 9, 1993, entered into between
the Registrant and WRC Properties, Inc. (1)
10.8 Lease Agreement dated as of August 21, 1991, entered into among
the Registrant, Licoln Las Positas and Patrician Associates, Inc.
(1)
10.9 Standard Industrial/Commercial Single-Tenant Lease-Gross dated as
of March 27, 1995, entered into among the Registrant, Thomas G.
Allan and Annie L. Henry (1)
10.10 Lease Agreement dated as of March 29, 1994, entered into between
the Registrant and TMC Properties, Inc. (1)
10.11 Lease Agreement dated as of November 1, 1991, entered into between
the Registrant and ASC North Fulton Associates Joint Venture (1)
10.12 Agreement with Donaldson Lufkin & Jenrette Securities Corporation
(3)
*10.13 Agreement for Purchase and Sale of Property dated June 3, 1996
entered into between the Registrant and Duke Realty Limited
Partnership
*10.14 Lease Agreement dated as of June 3, 1996 entered into between the
Registrant and Duke Realty Limited Partnership
*10.15 Lease Agreement dated as of May 30, 1996 entered into between the
Registrant and Dugan Realty, L.L.C.
*10.16 Lease Agreement dated as of June 3, 1996 entered into between the
Registrant and Duke Realty Limited Partnership
*10.17 Lease Amendment dated May 15, 1996 entered into between the
Registrant and Rosewood Associates.
*11.1 Schedule of Calculation of Earnings Per Share
21 List of Subsidiaries (1)
24 Powers of Attorney
*27 Financial Data Schedule
(b) Reports on Form 8-K.
1. Report on Form 8-K dated May 24, 1996 reporting the acquisition of
Dataflex Corporation.
2. Report on Form 8-K dated June 14, 1996 reporting the agreement
with Donaldson Lufkin & Jenrette Securities Corporation
(1) Incorporated by reference to exhibits filed with Registrant's
Registration Statement on Form S-1 (Reg. No. 33-80297) as declared
effective by the Commission on March 8, 1996.
(2) Incorporated by reference to Exhibit 2.1 to the Registrant's
report on Form 8-K dated May 24, 1996.
(3) Incorporated by reference to Exhibit 10 to the Registrant's report
on Form 8-K dated June 14, 1996.
* Filed herewith.
** Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission
pursuant to the Registrant's Application Requesting
Confidential Treatment under Rule 406 under the
Securities Act of 1933, as amended.
All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements or
related notes.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Pleasanton, State of California, on
the 16th day of July, 1996.
VANSTAR CORPORATION
By: /s/ JEFFREY S. RUBIN
---------------------------------
Jeffrey S. Rubin
Vice Chairman, Chief Financial
Officer and Director (Principal
Financial and Accounting Officer)
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Form 10-K
has been signed on the 16th day of July, 1996, by or on behalf of the following
persons in the capacities indicated:
SIGNATURE TITLE
/s/ WILLIAM Y. TAUSCHER* Chairman of the Board, Chief Executive
------------------------- Officer and Director (Principal Executive
William Y. Tauscher Officer)
/s/ JEFFREY S. RUBIN Vice Chairman, Chief Financial Officer and
---------------------- Director (Principal Financial and Accounting
Jeffrey S. Rubin Officer)
/s/ JAY S. AMATO* President, Chief Operating Officer and Director
------------------
Jay S. Amato
/s/ RICHARD H. BARD* Director
---------------------
Richard H. Bard
/s/ STEPHEN W. FILLO* Director
----------------------
Stephen W. Fillo
/s/ STEWART K.P. GROSS* Director
------------------------
Stewart K.P. Gross
/s/ WILLIAM H. JANEWAY* Director
------------------------
William H. Janeway
/s/ JOHN L. VOGELSTEIN* Director
------------------------
John L. Vogelstein
/s/ JOHN W. AMERMAN* Director
------------------------
John W. Amerman
/s/ JOHN R. OLTMAN* Director
------------------------
John R. Oltman
/s/ JOSH S. WESTON* Director
------------------------
Josh S. Weston
*By /s/ H. JEFFREY S. RUBIN
-----------------------------
Jeffrey S. Rubin
ATTORNEY-IN-FACT
<PAGE>
EXHIBIT 10.13
AGREEMENT FOR PURCHASE
AND SALE OF PROPERTY
THIS AGREEMENT is made and entered into as of this 3rd day of June,
1996, by and between VANSTAR CORPORATION, a Delaware corporation ("Seller"), and
DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership ("Buyer").
W I T N E S S E T H T H A T :
WHEREAS, Buyer wishes to purchase, and Seller wishes to sell, the
Property (as hereinafter defined), but only upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of Ten Dollars ($10.00), the Earnest
Money, the mutual covenants and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows:
SECTION 1. DEFINITIONS AND EXHIBITS.
1.1 DEFINITIONS. For purposes of this Agreement, each of the
following terms, when used herein with an initial capital letter, shall have the
meaning ascribed to it as follows:
1.1.1 AGREEMENT. This Agreement for Purchase and Sale of
Property.
1.1.2 BOMA STANDARDS. The American National Standard adopted
and approved by the Building Owners and Managers Association International on
July 31, 1980, as amended from time to time.
1.1.3 BROKER. The broker described in Section 16.1 hereof.
1.1.4 BUILDING. The Vanstar Corporation building commonly
known as 6060-B Guion Road (168,624 square feet) located in Indianapolis,
Indiana.
1.1.5 CLOSING. The closing and consummation of the purchase
and sale of the Property pursuant hereto.
1.1.6 CLOSING DATE. The date on which the Closing occurs as
provided in Section 11.1 hereof.
1
<PAGE>
1.1.7 CONFIDENTIAL INFORMATION. The confidential information
described in Section 6.1 hereof.
1.1.8 CONTRACT DATE. The date upon which this Agreement shall
be deemed effective, which shall be the date first above written.
1.1.9 DEED. The Limited Warranty Deed to be executed by
Seller in the form attached hereto as EXHIBIT J.
1.1.10 DISCLOSURES. The disclosures described in Section 8.9
hereof
1.1.11 ENVIRONMENTAL LAWS. Any applicable statute, code,
enactment, ordinance, rule, regulation, permit, consent, approval,
authorization, license, judgment, order, writ, common law rule (including
without limitation the common law respecting nuisance and tortious liability),
decree, injunction, or other requirement having the force and effect of law,
whether local, state, territorial or national, at any time in force or effect
relating to:
(i) Emissions, discharges, spills, releases or threatened releases of
Hazardous Substances into ambient air, surface water, ground water,
watercourses, publicly or privately owned treatment works, drains, sewer
systems, wetlands, septic systems or onto land; (ii) The use, treatment,
storage, disposal, handling, manufacturing, transportation or shipment of
Hazardous Substances;
(iii) The regulation of storage tanks; or
(iv) Otherwise relating to pollution or the protection of human health or
the environment.
1.1.12 EARNEST MONEY. The amount deposited by Buyer in escrow
with Escrow Agent as earnest money pursuant to the terms and conditions of
Section 3 hereof, together with any interest earned thereon (which shall follow
principal).
1.1.13 ESCROW AGENT. First American Title Insurance Company or
such other escrow agent mutually acceptable to Buyer and Seller acting as Escrow
Agent pursuant to the terms and conditions of the Escrow Agreement and Section 3
hereof
1.1.14 ESCROW AGREEMENT. That certain Escrow Agreement of even
date herewith among Seller, Buyer and Escrow Agent referred to in Section 3
hereof and attached hereto as EXHIBIT A and by this reference made a part
hereof.
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1.1.15 HAZARDOUS SUBSTANCES. All substances, wastes,
pollutants, contaminants and materials regulated, or defined or designated as
hazardous, extremely or imminently hazardous, dangerous, or toxic, under the
following federal statues and their state counterparts, as well as these
statutes' implementing regulations: the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., the Federal
Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. Section 136 et seq., the
Atomic Energy Act, 42 U.S.C. Section 2011 et seq, and the Hazardous Materials
Transportation Act, 42 U.S.C. Section 1801 et seq.; petroleum and petroleum
products including crude oil and any fractions thereof; asbestos; and Natural
gas, synthetic gas, and any mixtures thereof.
1.1.16 GUARANTOR OR GUARANTORS. Each guarantor of any of a
Tenant's duties and obligations under such Tenant's Lease (collectively, the
Guarantors").
1.1.17 GUARANTY OR GUARANTIES. Each guaranty presently in
effect of all or any of a Tenant's duties and obligations under a Lease
(collectively, the "Guaranties").
1.1.18 IMPROVEMENTS. The Building and any other buildings,
structures and improvements located upon the Land.
1.1.19 INSPECTION DATE. The Inspection Date set forth in
Section 6.3 hereof.
1.1.20 LAND. All those tracts or parcels of land described in
EXHIBIT B attached hereto and by this reference made a part hereof.
1.1.21 LEASE; LEASES. Each lease of space or property within
the Property in force and effect as of the date hereof (collectively, the
"Leases") within the Property, the Leases being listed in EXHIBIT C attached
hereto and by this reference made a part hereof.
1.1.22 PERMITTED TITLE, EXCEPTIONS. Those matters identified
on EXHIBIT D attached hereto and by this reference made a part hereof.
1.1.23 PROPERTY. All of Seller's right, title and interest in,
to and under the following property:
(i) The Leases;
(ii) The Land;
(iii) The Improvements;
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(iv) The personal property and fixtures (collectively, the
"Personal Property") listed on EXHIBIT E attached hereto and by this
reference made a part hereof;
(v) The Guaranties;
(vi) The Security Deposits;
(vii) The Surviving Service Contracts; and
(viii) All rights of way or use, licenses, tenements,
hereditaments, appurtenances and easements now or hereafter belonging
or pertaining to any of the foregoing, except those, if any,
hereinafter reserved to Seller.
1.1.24 PRORATION DATE. The effective date of the prorations
provided in Section 4.2 hereof, which is midnight on the eve of the Closing
Date.
1.1.25 PURCHASE PRICE. The purchase price for the Property
described in Section 4.1 hereof.
1.1.26 RENT ROLL. The rent roll attached hereto as EXHIBIT F and
by this reference made a part hereof, or any updated version thereof.
1.1.27 RENTS. The rents and other charges under the Leases
described in Section 4.2.1 hereof.
1.1.28 SECURITY DEPOSITS. Any and all security deposits made
pursuant to the Leases.
1.1.29 SERVICE CONTRACTS. All of the service or management
contracts, equipment, labor or material contracts, maintenance or repair
contracts or other agreements (other than the Leases) that are in force and
affect the Property or the operation, repair or maintenance thereof, a complete
list of such contracts or agreements being contained in EXHIBIT G attached
hereto and by this reference made a part hereof.
1.1.30 SURVEY. The survey of the Land described in Section 6.4
hereof.
1.1.31 SURVIVING SERVICE CONTRACTS. Those Service Contracts which
Buyer may elect in writing to assume, with Seller's consent, pursuant to Section
7 below and which shall be assigned to Buyer at the Closing.
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1.1.32 TENANT OR TENANTS. Each Tenant who has executed a Lease
(collectively, the "Tenants").
1.1.33 TENANT ESTOPPEL CERTIFICATES. The estoppel certificates
which Seller shall devote its good faith efforts to obtain from the Tenants, as
provided in Section 10 hereof, such certificates to be substantially in the form
of EXHIBIT H attached hereto and by this reference made a part hereof.
1.1.34 TITLE INSURER. First American Title Insurance Company or
such other title insurer acceptable to Buyer.
1.2 EXHIBITS AND APPENDICES. Attached hereto and forming an integral
part of this Agreement are the following exhibits and appendices, all of which
are incorporated into this Agreement as fully as if the contents thereof were
set out in full herein at each point of reference thereto:
Exhibit A - Escrow Agreement
Exhibit B - Description of Land
Exhibit C - List of Leases
Exhibit D - Permitted Title Exceptions
Exhibit E - List of Personal Property
Exhibit F - Rent Roll
Exhibit G - Service Contracts
Exhibit H - Form of Tenant Estoppel Certificate
Exhibit I - Description of Litigation Affecting Seller or the
Property
Exhibit J - Form of Deed
Exhibit K - Assignment and Assumption of Leases and Guaranties
Exhibit L - Non-Foreign Certificate
Exhibit M - Bill of Sale
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Exhibit N - Assignment and Assumption of Surviving Service
Contracts
Exhibit 0 - Uncompleted Tenant Improvements
Exhibit P - Notice to Tenants
Appendix I - Form of Lease - New Building
Appendix 2 - Form of Lease - Property
Appendix 2A - Terms of Lease - Property
Buyer and Seller acknowledge and agree that the exhibits and
appendices are in draft form, and each agrees to negotiate in good faith the
completion of such exhibits and appendices on or before the Inspection Date.
SECTION 2. PURCHASE AND SALE AGREEMENT.
Subject to and in accordance with the terms and provisions hereof,
Seller agrees to sell and Buyer agrees to purchase the Property.
SECTION 3. EARNEST MONEY.
3.1 EARNEST MONEY. Simultaneously herewith, Buyer has deposited with
Escrow Agent the sum of Twenty Thousand Dollars ($20,000.00) as the earnest
money deposit under this Agreement, which deposit, together with any interest or
other income earned thereon (collectively, the "Earnest Money"), shall be held,
invested and disbursed pursuant to the respective terms and provisions hereof
and of the Escrow Agreement.
3.2 DISBURSEMENT. Whenever the Earnest Money is by the terms hereof
to be disbursed by Escrow Agent, Seller and Buyer agree promptly to execute and
deliver such notice or notices as shall be necessary or, in the opinion of
Escrow Agent, appropriate to authorize Escrow Agent to make such disbursement.
SECTION 4. PURCHASE PRICE.
4.1 PURCHASE PRICE. The purchase price (the "Purchase Price") for
the Property shall be Three Million One Hundred Twenty-five Thousand Dollars
($3,125,000.00). The Purchase Price, as adjusted by the prorations provided in
Section 4.2 hereof and as reduced by the Earnest Money disbursed by Escrow Agent
at the Closing to Seller as a portion of the Purchase Price, shall be paid by
Buyer to Seller at
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the Closing in United States dollars, by Federal Reserve System wire transfer or
other immediately available funds acceptable to Seller.
4.2 PRORATIONS. The following items shall be prorated between Seller
and Buyer as of the Proration Date, and prorations favoring Buyer, to the extent
determinable as of the Proration Date, shall reduce the Purchase Price payable
by Buyer at the Closing, and such prorations favoring Seller, to the extent
determinable as of the Proration Date, shall increase the Purchase Price payable
by Buyer at the Closing:
4.2.1 Rents, additional rents, common area maintenance
charges, charges for taxes and insurance premiums or for escalations thereof, if
any, and other charges under the Leases (hereinafter collectively referred to as
the "Rents"). If, on the Proration Date, any Tenant is delinquent in the
payment of any Rents, then Buyer shall refund to Seller an amount, up to the
full amount of such receivable, at the time of Buyer's receipt of any Rents from
such Tenant, to the extent of any portion of such payment remaining after Buyer
deducts all Rents due Buyer from such Tenant after the Proration Date and after
Buyer deducts any costs of collecting such Rents. Any adjustments for common
area maintenance, taxes or utility charges collected after the Proration Date
which are attributable to any period prior to the Proration Date shall be
refunded to Seller, if, as and when received, after Buyer deducts any costs of
collecting such Rents.
4.2.2 The state and county ad valorem property taxes becoming
a lien on the Property during the calendar year of Closing; provided, however,
that in any event, Seller shall be responsible for any installments of property
taxes due in the calendar year of closing. If the actual tax bills have not been
issued, then such proration shall be based on such taxes for the prior year or
tax period. After the tax bills for the year or tax period of Closing are
received by either Buyer or Seller, Buyer and Seller shall adjust such
proration, and any amount then owing shall be paid within twenty (20) days of
demand by the party entitled thereto. Seller shall be responsible for any and
all assessments with regard to the Property that are a lien on the Property as
of the date of Closing, notwithstanding the date(s) such assessment, or any
installment thereof, is due and payable. Notwithstanding anything herein to the
contrary, the taxes prorated to Seller pursuant to this Section, as adjusted (
"Seller's Tax Liability") shall not be credited to Buyer at closing and in lieu
thereof, Seller shall promptly pay such taxes as they become due and owing,
until such time as Seller's Tax Liability has been reduced to zero ($0.00) Buyer
shall forward copies of the tax bills within ten (10) days of receipt, and
Seller shall pay such taxes on or before the due date thereof. Any late charges
or penalties caused by Seller's failure to timely pay such taxes shall be
Seller's responsibility and shall not reduce Seller's Tax Liability. This
provision shall survive Closing until such time as Buyer and Seller agree that
Seller's Tax Liability has been reduced to zero ($0.00).
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4.2.3 Sanitary sewer taxes, assessments and utility charges, if
any, to the extent, and only to the extent, such taxes and charges are not
required to be paid by any Tenant.
4.2.4 Operating expenses of the Property, including, without
limitation, charges under the Surviving Service Contracts.
4.2.5 In assuming Seller's obligations under the Leases at the
Closing, Buyer shall specifically assume and agree to pay any and all leasing
commissions, tenant improvement allowances and rent concessions that may become
due and owing or may be required to be credited under any of the Leases after
the Closing, subject, however, to Sections 8.3 and 9 hereof. Buyer shall not be
entitled to, and shall not receive, a credit against the Purchase Price for any
such future payments.
4.2.6 If the parties make any errors in the closing prorations
or if they subsequently determine that any dollar amount prorated to be
incorrect, each agrees, upon notice from the other within one (1) year after the
Closing, to make any adjustment necessary to correct the error, including
payment of any amount to the other then determined to be owing.
Buyer shall cooperate with Seller and use its best efforts to collect any
payment required to be prorated under this Section 4.2 after the Closing;
provided, however, that Buyer shall have no obligation to bring any legal action
to collect such payment, although Seller shall have the right to sue delinquent
Tenants for delinquent rent so long as Seller does not cause a termination of
any Lease. Seller shall have the right, at any time for one (1) year after the
Closing upon prior notice to Buyer, to review, inspect and audit any and all
books, records and other information of Buyer relating to any proration required
under this Section 4.2. Buyer and Seller shall promptly pay to the other party
any amount due to the other party as a result of any proration required under
this Section 4.2. All amounts due hereunder shall be payable no later than
twenty (20) days after demand by the payee, and, if such payments duly owing are
not then timely paid, then all such amounts shall bear interest at a rate equal
to fifteen percent (15%) per annum until such time as all such amounts are paid
in full. The terms and conditions set forth in this Section 4.2 Shall expressly
survive the Closing hereunder only for the period of time necessary to achieve
final prorations of all amounts due and owing hereunder.
SECTION 5. TITLE TO THE PROPERTY. Seller shall convey merchantible
and marketable fee simple title to the Land and the Improvements to Buyer in the
form of the Deed, which shall expressly be made subject to the Permitted Title
Exceptions. Buyer shall have until thirty (30) days after the Contract Date by
which to examine title to the Property, obtain any title commitments from the
Title Insurer, and to give written notice to Seller of any objections which
Buyer may have. If Buyer fails to give any notice to Seller by such date, Buyer
shall be deemed to have waived such right to object to any title exceptions or
defects. If Buyer does give Seller timely notice of objection to any
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other title exceptions or defects, Seller shall use commercially reasonable
efforts to cure or satisfy such objection by the Closing provided, however, that
Buyer and Seller agree to negotiate in good faith in attempting to cure such
objections. If such objection is not so timely and reasonably cured or satisfied
or undertaken to be reasonably cured or satisfied by Seller, then Buyer shall,
within five (5) days thereafter, elect, by written notice to be received by
Seller on or before such fifth (5th) day, either to (a) terminate this
Agreement, in which case the Earnest Money shall be returned to Buyer by Escrow
Agent, and the parties shall have no further rights or obligations hereunder,
except for those which expressly survive any such termination, or (b) waive its
objections hereunder and proceed with the transaction pursuant to the remaining
terms and conditions of this Agreement. If Buyer fails to give Seller notice of
its election by such time, it shall be deemed to have elected the option
contained in subparagraph (a) above. If Seller does so reasonably cure or
satisfy, or undertake to reasonably cure or satisfy, such objection to the
satisfaction of Buyer, as determined in its sole discretion, then this Agreement
shall continue in full force and effect. Buyer shall have the right at any time
to waive any objections that it may have made and, thereby, to preserve this
Agreement in full force and effect. Seller agrees not to further voluntarily
alter or encumber in any way Seller's title to the Property after the Contract
Date (except to the extent provided in Section 9 below) without Buyer's written
consent. Notwithstanding anything to the contrary contained herein, Seller shall
be obligated to remove as a title exception on or before Closing (i) all
mortgages, security deeds or other security instruments encumbering the
Property, and (ii) all past due ad valorem taxes and assessments, owners
association, roadway or other easement fees, dues or assessments of any kind,
whether or not of record, which constitute, or may constitute, a lien against
the Property. In addition, Seller shall be obligated to remove (or bond over)
any judgments against the Seller (which do not result from acts or omissions on
the part of Buyer) which have attached to and become a lien against the
Property. At Closing, Seller's Deed shall convey all of Seller's right, title
and interest in the Property, subject only to the Permitted Encumbrances and
other matters of record.
SECTION 6. BUYER'S INSPECTION.
6.1 DOCUMENT INSPECTION. Buyer and Seller acknowledge that Buyer
shall inspect the Property and shall examine, review and inspect the books and
records relating to the ownership and operation of the Property pursuant to the
terms hereof. Within ten (10) days after the date hereof, Seller shall make
available to Buyer complete copies of each of the following documents related to
the Property that it has in its possession as of that date:
(a) The Leases;
(b) A rent roll for the Property, outlining the terms of all Leases
and dated not more than thirty (30) days prior to the Contract Date. Seller
shall
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update such rent roll to a date which is not more than thirty (30) days
prior to the Closing Date;
(c) List of all security deposits, prepaid rent or other sums
currently held by Landlord under the Leases;
(d) All material tenant correspondence, and all financial statements
for tenants which are not subject to a confidentiality agreement. Further,
Buyer shall have the right to visit Seller's offices to inspect and review
tenants' files located at Seller's offices;
(e) Copies of all service, management, leasing or brokerage
contracts, personal property leases and other executory contracts
respecting the Property. Seller shall update such list to a date which is
not more than thirty (30) days prior to the Closing Date;
(f) Copies of real estate tax bills and assessments for the Property
for the current year and for the past three (3) years;
(g) All engineering and architectural plans and specifications,
drawings, site plans, surveys, soil boring test results, other test
results, studies and as-built plans and specifications of the Property,
traffic studies, and other construction and zoning materials for the
Property;
(h) Operating statements and related documents and records for the
Property for the current year and for the three (3) years immediately
preceding the current year;
(i) Copies of all certificates of occupancy for the building shell
and for all occupied tenant spaces, licenses, permits, authorizations and
approvals required by law or by any governmental authority having
jurisdiction over the Property, relating to the construction, occupancy,
operation or present use of the Property;
(j) The most recent budget for the Property, including income,
operating expenses, property taxes and assessments and capital
expenditures;
(k) A list of all personal property located on the Property and owned
by Seller;
(l) Copies of all warranties and guaranties issued in connection with
the Property;
(m) Copies of all environmental reports of the Property;
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(n) Copies of any prior surveys of the Property;
(o) Copies of insurance policies, insurance certificates delivered by
tenants, and claims documentation for the current year and for the past
three (3) years respecting the insurance maintained on the Property or any
portion thereof;
(p) Any other information or documentation relating to the design,
construction, layout, structure, mechanical, electrical and plumbing
systems, fire protection systems and subsurface conditions relating to the
Property; and
(q) Copies of all books, records, bills, invoices, lease files,
credit reports, and other documentation related to the ownership,
construction, operation and leasing of the Property; and
(r) A current updated title commitment issued by the Title Insurer,
together with all exception documents of record.
6.2 PHYSICAL INSPECTION. Subject to the rights of the Tenants under
the Leases and any rights or restrictions under any of the Permitted Title
Exceptions, Buyer and its agents shall have the right, from time to time prior
to the Closing, to enter upon the Property to examine the same and the condition
thereof, and to conduct such surveys and to make such engineering and other
inspections, tests and studies as Buyer shall determine to be reasonably
necessary, all at Buyer's sole cost and expense. Buyer agrees to give Seller
advance notice of such examinations or surveys and to conduct such examinations
or surveys during normal business hours to the extent practicable. Buyer agrees
to conduct all examinations and surveys of the Property in a manner that will
not harm or damage the Property or cause any claim adverse to Seller or default
under any Lease, and agrees to restore the Property to its condition prior to
any such examinations or surveys immediately after conducting the same. Buyer
hereby indemnifies and holds Seller harmless from and against any claims for
injury or death to persons, damage to property or other losses, damages or
claims, including, without limitation, claims of any Tenants, and including, in
each instance, attorneys' fees and litigation costs, arising out of any action
of any person or firm entering the Property on Buyer's behalf as aforesaid,
which indemnity shall survive the Closing and any termination of this Agreement
without the Closing having occurred.
6.3 FORMAL INSPECTION PERIOD. Notwithstanding Buyer's right of
inspection contained in Section 6.2 above, with respect to the condition of the
Property, Buyer's obligation to close under this Agreement is subject to and
conditioned upon Buyer's investigation and study of and satisfaction with the
Property. Buyer shall have until the sixtieth (60th) day after the date hereof
(the "Inspection Date") in which to make such investigations and studies with
respect to the Property as Buyer deems appropriate, and to terminate this
Agreement, by written notice to Seller, to be received
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on or before the Inspection Date, if Buyer is not, for any reason satisfied with
the Property. If Buyer fails to give notice of such termination, to be received
by Seller on or before the Inspection Date, then Buyer's rights under this
Section 6.3 shall be deemed to have been exercised by Buyer and this Agreement
shall terminate and the Earnest Money shall be refunded to Buyer by Escrow
Agent, and the parties shall have no further rights or obligations hereunder,
except for those which expressly survive any such termination.
6.4 SURVEY. Within ten (10) days after the Contract Date, Seller, at
Seller's expense shall deliver to Buyer a current, ALTA/ACSM as-built survey of
the Property in the form acceptable to Buyer (the "Survey"). The Survey shall
(a) be completed in accordance with the minimum standard detail requirements for
the ALTA Urban survey and certified to Seller, Buyer, Buyer's lender and the
Title Company by such surveyor; (b) have one perimeter description of the
Property; (c) show all easements, right-of-way, setback lines, encroachments and
other matters affecting the use or development of the Property; (d) show the
number and location of all parking spaces; (e) show the address, dimensions and
location of the Improvements and the height and square footage thereof; (f) show
the acreage of the Property; (g) certify the zoning of the Property; and (h)
certify that no portion of the Property lies within a flood plain or wetlands
area. The Deed to be delivered by Seller to Buyer at the Closing shall contain
the legal description of the Property as shown on the Survey.
6.5 ENVIRONMENTAL ASSESSMENT. Within thirty (30) days after the
Contract Date, Buyer at its expense, may obtain a current ASTM Phase I
environmental site assessment for the Property, performed by an environmental
consultant acceptable to Buyer. If the Phase I environmental site assessment
recommends that Phase II environmental site assessment be prepared, Buyer shall
immediately notify Seller. Seller shall have five (5) days after receiving such
notice to either pay for the cost of such Phase II environmental site assessment
and extend the Inspection Date until a reasonable period following completion of
that assessment, or terminate this Agreement. In the event Seller elects to
terminate this Agreement, the Earnest Money shall be promptly returned to Buyer.
SECTION 6.6. LEASES. On or before the Inspection Date (i) Seller shall
enter into a lease with Buyer in a form as attached hereto as APPENDIX 1 and as
reasonably acceptable to Buyer and Seller for approximately 400,000 square feet
in a facility to be constructed to meet Vanstar's specifications at 7300 N.
Georgetown Road, Indianapolis, Indiana (the "New Building"), and (ii) Seller
shall enter into a lease with Buyer in a form as attached hereto as APPENDIX 2
and as reasonably acceptable to Buyer and Seller with regard to the Property on
terms and conditions as outlined in APPENDIX 2A or otherwise as approved by
Buyer.
SECTION 7. SERVICE CONTRACTS. Prior to the Inspection Date, Buyer and
Seller shall negotiate in good faith and agree as to which of the Service
Contracts shall be assumed by Buyer at Closing.
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SECTION 8. REPRESENTATIONS AND WARRANTIES.
As of the Contract Date, Seller hereby warrants and represents to
Buyer as follows:
8.1 LEASES. There are currently no written or oral promises,
understandings or commitments with any tenant affecting the use or occupation of
the Property. Any and all leases with tenants have expired or terminated.
8.2 SERVICE CONTRACTS. A complete and accurate list and description
of all of the Service Contracts is set forth in EXHIBIT G hereto. To Seller's
knowledge, all such Service Contracts are in full force and effect in accordance
with their respective terms. Seller has not given or received any notice of
default under the Service Contracts, and Seller has no knowledge of any event
which, with the passage of time or the giving of notice, would constitute a
default thereunder.
8.3 NO LITIGATION. Except as described in EXHIBIT I attached hereto
and by this reference made a part hereof, Seller has no knowledge nor has Seller
received written notice, of (a) any actual or pending litigation or proceeding
by any organization, person, individual or governmental agency against Seller
with respect to the Property or against the Property, (b) any material violation
of the Property's compliance with applicable fire safety laws, building code
ordinances, zoning ordinances or any similar statutes, ordinances, laws, rules
or regulations, (c) any material adverse condition, defect or inadequacy which,
if not corrected, would result in the termination of, or increase in the cost
of, insurance coverage, (d) any proceedings which could cause the change,
redefinition or other modification of the zoning classifications or of other
legal requirements applicable to the Property or any part thereof, or (e)
pending or threatened condemnation proceeding that would materially adversely
affect the Property.
8.4 BOUNDARY LINES OF LAND. There is no pending litigation nor has
Seller received written notice, of any dispute, concerning the location of the
lines and corners of the Land, and Seller has not been served with any legal
action concerning the location of the lines and corners of the Land.
8.5 TAXES AND ASSESSMENTS. To Seller's knowledge, except as may be
revealed in the public records where the Land is located, the Land is not
subject to or affected by any special assessment for public improvements or
otherwise, whether or not presently a lien upon the Land. Seller has made no
commitment to any governmental authority, utility company, school board, church
or other religious body, homeowner or homeowner's association or any other
organization, group or individual relating to the
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Property which would impose an obligation upon Seller or its successors of
assigns to make any contributions or dedications of money or land, or to
construct, install or maintain any improvements of a public or private nature as
part of the Property or upon separate lands. To Seller's knowledge, no
governmental authority has imposed any requirement that Seller pay, directly or
indirectly, any special fees or contributions or incur any expenses or
obligations in connection with the development of the Property or any portion
thereof, other than any regular and nondiscriminatory local real estate or
school taxes assessed against the Property. To Seller's knowledge, no federal,
state or local taxing authority has asserted any tax deficiency, lien, interest
or penalty, special assessment or other assessment against the Property or
Seller which has not been paid; and there is no pending audit or inquiry form
any federal, state or local tax authority or other matter relating to the
Property or Seller of which Seller has notice or knowledge which reasonably may
be expected to result in a tax deficiency, lien, interest, penalty, special
assessment or other assessment against the Property or Seller.
8.6 ENVIRONMENTAL MATTERS. To Seller's knowledge, and except as may
be revealed in any environmental report delivered to Buyer pursuant to Section
6.1 hereof:
(a) Hazardous Substances have not been used, generated,
transported, treated, stored, released, discharged or disposed of in,
onto, under or from the Property in violation of any Environmental
Laws by Seller or by any predecessor-in-title or agent of Seller, by
any Tenant or by any other Person at any time;
(b) no notification of release of a Hazardous Substance has been
filed as to the Property, nor is the Property listed on the National
Priority List promulgated pursuant to CERCLA or on any other Federal
or state list of Hazardous Substance sites requiring investigation or
cleanup;
(c) there are no above-ground or underground tanks or any other
underground storage facilities located on the Property, and there have
never been such tanks or facilities on the Property.
(d) the Property does not contain any PCBs, asbestos or urea
formaldehyde; and
(e) the Property does not lie within or contain, in whole or in
any part, any wetlands.
To Seller's knowledge, Seller has received no written or oral notice or other
communication of pending or threatened claims, actions, suits, proceedings or
investigations against Seller or any Tenant or occupant of the Property related
to (i) the disposal or release of solid, liquid or gaseous waste into the
environment from the Property,(ii) the use, generation, transportation,
treatment, storage, release, discharge,
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disposal or other handling of any Hazardous Substance on the Property, or (ii)
any alleged violation of any Environmental Laws in relation to the Property.
8.7 UTILITIES. To Seller's knowledge, all water, sewer, electric,
natural gas, telephone and drainage facilities, and all other utilities required
for the intended operation of the Property, are installed to the Property and
are connected with valid permits. To Seller's knowledge, all utility lines
serving the Property are located within the boundaries of the Property, within
lands dedicated to public use, or within recorded easements for such purpose.
8.8 WARRANTIES. The warranties and guaranties made available to
Buyer pursuant to Section 6.1 hereof are complete and accurate. To Seller's
knowledge, all such warranties and guaranties are in full force and effect in
accordance with their respective terms.
8.9 CONDITION. To Seller's knowledge, all improvements (including
without limitation all pavement; elevators; roofs; mechanical, plumbing,
drainage, structural, heating, ventilating and air-conditioning systems; or
other systems at or servicing the Property and all other facilities and
equipment relating thereto) are in working order and fully usable for their
intended purpose.
8.10 SELLER'S KNOWLEDGE. Whenever a representation and warranty made
by Seller in this Section 8 is limited to Seller's knowledge, the phrase
"Seller's knowledge, or any derivation thereof shall mean the current actual
conscious knowledge (without duty of inquiry) of those of Seller's officers and
supervising employees who are currently employed by Seller and who are
responsible on behalf of Seller for the acquisition, development, management
operation and disposition of the Property.
8.11 MISCELLANEOUS. It shall be a condition of Closing that the
representations and warranties contained in this Section 8 are true and correct
at Closing and Seller shall be deemed to have reaffirmed these representations
and warranties at Closing. In the event that Seller or Buyer learns that any of
said representations or warranties becomes inaccurate between the Contract Date
and the Closing Date, Seller or Buyer shall immediately notify the other party
in writing of such change. Seller shall then use its good faith efforts to cure
such change after giving or receiving notice thereof as require herein. The
Closing Date shall be automatically extended in order to allow Seller to cure
such change. In the event Seller so cures such change, this Agreement shall
remain in full force and effect. If Seller is unable to cure such change, Buyer
may either (a) terminate this Agreement by written notice to Seller, in which
case the Earnest Money shall be returned to Buyer and the parties shall have no
further rights or obligations hereunder, except for those which expressly
survive such termination, or (b) waive such right to terminate and proceed with
the transaction pursuant to the remaining terms and conditions of this
Agreement. In the event Buyer elects option (b) in the
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preceding sentence or in the event Buyer elects to Close with the knowledge that
a representation or warranty of Seller herein is untrue or incorrect, the
representations and warranties shall be deemed to be automatically amended to
reflect said change. The representations and warranties contained in this
Section 8 shall survive Closing but shall terminate one (1) year after the
Closing Date, unless a suit is filed thereupon in a court of competent
jurisdiction on or before the expiration of said one (1) year period.
SECTION 9. PRESERVATION OF LEASES, SURVIVING SERVICE CONTRACTS AND
GUARANTIES. Without Buyer's prior written consent, which shall not be
unreasonably withheld or delayed, Seller shall not enter into any new leases or
amend or modify the Leases or the Surviving Service Contracts after the Contract
Date. After the Contract Date, Seller shall not, without Buyer's prior written
consent, cancel any Lease, Surviving Service Contract or Guaranty, consent to
any surrender or release of any Lease or Guaranty or consent to any assignment
or sublease under any Lease. Seller shall give Buyer notice of any such
contemplated action, and Buyer shall give Seller either its written consent or
objection, giving its reasons for any objection, to be received by Seller on or
before the fifth (5th) day after Buyer's receipt of such notice. If Buyer fails
to give notice of its election within said time period, it shall be deemed to
have not given its consent to said request. Seller shall, from and after the
date of this Agreement to the Closing Date, perform and discharge its duties and
obligations and otherwise comply with every material covenant and agreement of
the landlord or lessor under the Leases and the Surviving Service Contracts, in
its ordinary manner of business and within the time limits required thereunder.
SECTION 10.1 BUYER'S CONDITIONS TO CLOSING. Buyer's obligation to
proceed to Closing under this Agreement is subject to the following conditions
precedent:
(a) Seller shall have performed and satisfied each and all of
Seller's obligations under this Agreement;
(b) Each and all of Seller's representations and warranties set
forth in this Agreement shall be live and correct at the Contract Date
and at the Closing Date;
(c) Buyer shall have received not less than ten (10) days prior
to the Closing Date a Tenant Estoppel Certificate substantially in the
form attached hereto as EXHIBIT H and in the form acceptable to Buyer,
from all tenants or occupants under each Lease.
(d) There shall be no material change between the Contract Date
and the Closing Date in the physical or financial condition or
profitability of the Property or Improvements or in Seller's
obligations with respect thereto;
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(e) Seller shall have addressed to the satisfaction of Buyer
any obligations to tenants identified in EXHIBIT O; and
(f) Buyer shall have received all corporate approvals to
complete this transaction on or before the Closing Date.
In the event any of the foregoing conditions are not satisfied on the Closing
Date, Buyer shall have no obligation to proceed to Closing and, unless Buyer
shall deliver written notice to Seller that Buyer has waived any unsatisfied
condition and will proceed to Closing, this Agreement shall cease and terminate,
the Earnest Money shall be returned and paid to Buyer, and neither party shall
have any further obligation hereunder. Not withstanding the foregoing, nothing
contained herein shall waive or diminish any right or remedy Buyer may have for
Seller's default or breach of this Agreement.
SECTION 10.2. SELLER'S CONDITIONS TO CLOSING. Seller shall not be
obligated to proceed to Closing unless Buyer and Seller shall have executed the
leases described in Section 6.6 hereof on or before the Inspection Date in a
form reasonably acceptable to Seller.
SECTION 11. CLOSING.
11.1 TIME AND PLACE. Provided that all of the conditions set forth in
this Agreement are theretofore fully satisfied or performed, the Closing shall
be held at the offices of the Escrow Agent on a date selected by Buyer and
reasonably acceptable to Seller, which shall be within the earlier of fifteen
(15) days after the Inspection Date or June 30, 1996, unless the Closing Date is
postponed pursuant to the express terms of this Agreement or as otherwise agreed
by Seller and Buyer in writing.
11.2 CLOSING DOCUMENTS. For and in consideration of, and as a
condition precedent to Buyer's delivery to Seller of the Purchase Price, Seller
shall obtain and deliver to Buyer at the Closing the following documents to the
extent applicable (all of which shall be duly executed and witnessed, which
documents Buyer agrees to execute where required):
11.2.1 A Deed, in the form attached as EXHIBIT J hereto by this
reference made a part hereof, conveying to Buyer all of Seller's right, title
and interest in and to the Property, subject to the Permitted Title Exceptions
and such other exceptions as owe permitted by Section 5 hereof.
11.2.2 An Assignment and Assumption of Leases and Guaranties,
including but not limited to an assignment and assumption of all commissions due
under the Leases, in the form attached as EXHIBIT K hereto and by this reference
made a part hereof;
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11.2.3 A Non-Foreign Certificate, in the form attached as
EXHIBIT L hereto and by this reference made a part hereof;
11.2.4 Such evidence as the Title Insurer shall reasonably
require as to the authority of the parties acting on behalf of Seller and Buyer
to enter into this Agreement and to discharge the obligations of Seller and
Buyer pursuant hereto;
11.2.5 An original executed counterpart or certified copy of
each Lease, Guaranty and Surviving Service Contract;
11.2.6 An updated Rent Roll;
11.2.7 All original Tenant files in possession of Seller;
11.2.8 A Bill of Sale for all Personal Property, in the form
attached as EXHIBIT M hereto and by this reference made a part hereof;
11.2.9 An Assignment and Assumption of Surviving Service
Contracts and Warranties, in the form attached hereto as EXHIBIT N and by this
reference made a part hereof;
11.2.10 Notice from Seller to each Tenant and Guarantor of the
sale of the Property to Buyer, in the form attached hereto as Exhibit P and by
this reference made a part hereof;
11.2.11 The Tenant Estoppel Certificates (and certificate of
Seller, if applicable) as required by Section 9 hereof;
11.2.12 A properly-completed property transfer tax return, in
form and substance appropriate to the jurisdiction in which the Property is
located;
11.2.13 A Closing Statement;
11.2.14 An affidavit of title or other affidavit customarily
required of sellers by the Title Insurer to remove the standard exceptions from
an owner's title insurance policy which are capable of being removed by such an
affidavit; and
11.2.15 Such further instructions, documents and information,
including, but not limited to a Form 1099, as Buyer, Seller or Title Insurer may
reasonably request as necessary to consummate the purchase and sale contemplated
by this Agreement.
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11.3 COSTS. At the Closing, Seller and Buyer shall pay their own
respective costs incurred with respect to the consummation of the purchase and
sale of the Property as contemplated herein, including, without limitation,
attorneys' fees. Not withstanding the foregoing, it is expressly agreed that
Seller shall pay any city, county or state transfer taxes related to this sale,
any escrow fees charged by Escrow Agent for the Closing, the cost of the Survey,
and the premium for Buyer's title insurance policy. Buyer shall pay the cost of
any endorsements to Buyer's title insurance policy, the cost of the Phase I
environmental assessment, the cost of recording the Deed, the costs of any
governmental filings required of Buyer, any mortgage recording or intangibles
tax and all other taxes, costs, fees or expenses relating to Buyer's financing
of the Property.
11.4 SECURITY DEPOSITS AND PREPAID RENT. Seller shall pay over and
assign and transfer to Buyer at the Closing a sum equal to the aggregate of the
Security Deposits, other deposits under the Leases and any Rents prepaid for
months after the month of the Closing Date, and Buyer shall indemnify Seller
against any liability with respect thereto.
SECTION 12. DEFAULT AND REMEDIES.
12.1 BUYER'S DEFAULT. In the event of a default by Buyer under the
terms of this Agreement, Escrow Agent shall disburse the Earnest Money to
Seller, and Seller shall be entitled, as its sole and exclusive remedy
hereunder, to retain the Earnest Money as full liquidated damages for such
default of Buyer, whereupon this Agreement shall terminate and the parties shall
have no further rights or obligations hereunder, except for those which
expressly survive any such termination. It is hereby agreed that Seller's
damages in the event of a default by Buyer hereunder are uncertain and difficult
to ascertain, and that the Earnest Money constitutes a reasonable liquidation of
such damages and is intended not as a penalty, but as full liquidated damages.
Buyer covenants not to bring any action or suit challenging the amount of
liquidated damages provided hereunder in the event of such default. This
provision shall expressly survive the termination of this Agreement.
12.2 SELLER'S DEFAULT. In the event of a default by Seller under the
terms of this Agreement which is first discovered by Buyer prior to the Closing
and is not cured by Seller as proved hereunder, Buyer's sole and exclusive
remedies hereunder shall be to either terminate this Agreement and receive a
refund of the Earnest Money from Escrow Agent, or to seek specific performance
of Seller's obligations under this Agreement, together with any damages caused
by Seller's default hereunder.
SECTION 13. CONDEMNATION OR DESTRUCTION.
13.1 CONDEMNATION. Seller hereby represents and warrants that Seller
has no knowledge of any action or proceeding pending, instituted or threatened
for
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comdemnation or other taking of all or any part of the Property by friendly
acquisition or statutory proceeding. Seller agrees to give Buyer immediate
written notice of such actions or proceedings that may result in the taking of
all or a part of the Property. If, prior to the Closing, all or any material
part of the Property is subject to a bona fide threat of condemnation by a body
having the power of eminent domain, or is taken by eminent domain or
condemnation, or sale in lieu thereof, then Buyer, by written notice to Seller,
to be received within thirty (30) calendar days of Buyer's receiving Seller's
notice of such threat, condemnation or taking, or by the Closing Date, whichever
is earlier, may elect to terminate this Agreement.
13.2 DAMAGE OR DESTRUCTION. If, prior to the Closing, all or any
material part of the Property is damaged or destroyed by any cause, Seller
agrees to give Buyer immediate written notice of such occurrence and the nature
and extent of such damage and destruction, and Buyer, by written notice to
Seller, to be received within thirty (30) calendar days of Buyer's receipt of
Seller's notice of such damage or destruction, or by the Closing Date, whichever
is earlier, may elect to terminate this Agreement.
13.3 TERMINATION. If this Agreement is terminated as a result of the
provisions of either Section 13.1 or Section 13.2 hereof, Buyer shall be
entitled to receive a refund of the Earnest Money from Escrow Agent, whereupon
the parties shall have no further rights or obligations hereunder, except for
those which expressly survive any such termination.
13.4 AWARDS AND PROCEEDS. If Buyer does not elect to terminate this
Agreement following any notice of a threat of taking or taking by condemnation
or notice of damage or destruction to the Property, as provided above, this
Agreement shall remain in full force and effect and the conveyance of the
Property contemplated herein, less any interest taken by eminent domain or
condemnation, or sale in lieu thereof, shall be effected with no further
adjustments. At the Closing, Seller shall assign, transfer and set over to Buyer
all of Seller's right, title and interest in and to any awards, payments or
insurance proceeds for the actual value of the property lost or destroyed, up to
but not in excess of the Purchase Price, that have been or may thereafter be
made for any such taking, sale in lieu thereof or damage or destruction, to the
extent such awards, payments or proceeds shall not have theretofore been used
for restoration of the Property pursuant to a plan of restoration approved in
writing by Buyer. In addition there shall be credited to Buyer against the
Purchase Price the amount of any insurance deductible or other limitation on
insurance proceeds.
SECTION 14. ASSIGNMENT.
14.1 ASSIGNMENT BY BUYER. Except as herein expressly provided, Buyer
shall not, without the prior written consent of Seller, which Seller may
withhold in its sole and absolute discretion, assign any of Buyer's rights
hereunder or any part thereof
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to any person, firm, partnership, corporation or other entity. If any assignment
is made with the consent of Seller, then the sale contemplated by this Agreement
shall be consummated in the name of, and by and through the authorized officials
of, any such assignee. Notwithstanding anything to the contrary contained
herein, Seller shall not unreasonably withhold or delay its consent to Buyer's
assignment of this Agreement and all of its interests herein to an entity
related to Buyer without the consent of, but with notice to, Seller. Upon such
assignment or nomination, the assignee or nominee shall have and be subject to
all the rights, benefits, duties and obligations of Buyer hereunder, but Buyer
shall not be released from any liability or obligation of Buyer hereunder.
14.2 ASSIGNMENT BY SELLER. From and after the Contract Date, Seller
shall not, without the prior written consent of Buyer, which consent Buyer may
withhold in its sole discretion, assign, transfer, convey, hypothecate or
otherwise dispose of all or any part of its right, title and interest in the
Property.
SECTION 15. BUYER'S REPRESENTATION AND WARRANTY.
Buyer does hereby represent and warrant to Seller as of the Contract
Date and the Closing Date that it is a validly formed limited partnership under
the laws of Indiana; that it is in good standing in the state of its
organization and qualified to do business in the State in which the Land is
located; that it is not subject to any involuntary proceeding for the
dissolution or liquidation thereof; that it has all requisite authorizations to
enter into this Agreement; and that the parties executing this Agreement on
behalf of Buyer are duly authorized to so do. If Buyer does not terminate this
Agreement on or before the Inspection Date, Buyer shall be deemed to have
represented and warranted to Seller as of the Inspection Date and the Closing
Date that Buyer has all requisite authorization to consummate the transactions
contemplated hereby.
SECTION 16. BROKER AND BROKER'S COMMISSION. Buyer and Seller each
warrant and represent to the other that such party has not employed a real
estate broker or agent in connection with the transaction contemplated hereby.
Each party agrees to indemnify and hold the other harmless from any loss or cost
suffered or incurred by it as a result of the other's representation herein
being untrue. This Section 16 shall expressly survive the Closing hereunder.
SECTION 17. NOTICES.
Wherever any notice or other communication is required or permitted
hereunder, such notice or other communication shall be in writing and shall be
delivered by hand, by nationally-recognized overnight express delivery service,
by U.S. registered or certified mail, return receipt requested, postage prepaid,
or by electronic transfer with prompt telephone confirmation to the addresses
set out below or at such other addresses as are specified by written notice
delivered in accordance herewith:
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SELLER: Vanstar Corporation
5964 West Las Positas
Pleasanton, CA 94566-9012
Attn: Richard English
Fax:(510) 734-4823
With a copy to: Baker & Daniels
300 North Meridian Street, Suite 2700
Indianapolis, IN 46204-1782
Attn: George Somers
Fax:(317) 237-1000
BUYER: Duke Realty Limited Partnership
8888 Keystone Crossing, Suite 1200
Indianapolis, IN 46240
Attn: Richard W. Horn
Fax: (317)574-3509
With a copy to: Duke Realty Limited Partnership
8888 Keystone Crossing, Suite 1200
Indianapolis, IN 46240
Attn: Peter N. Anderson
Fax: (317)574-3693
Any notice or other communication mailed as hereinabove provided shall be deemed
effectively given (a) on the date of delivery, if delivered by hand; (b) on the
date mailed if sent by overnight express delivery or if sent by U.S. mail; or
(c) on the date of transmission, if sent by electronic transfer device with a
follow-up by regular mail. Such notices shall be deemed received (a) on the date
of delivery, if delivered by hand or overnight express delivery service; (b) on
the date indicated on the return receipt if mailed; or (c) on the date of
transmission, if sent by electronic transfer device. If any notice mailed is
properly addressed but returned for any reason, such notice shall be deemed to
be effective notice and to be given on the date of mailing.
SECTION 18. MISCELLANEOUS.
18.1 GOVERNING LAW; HEADINGS; RULES OF CONSTRUCTION. This Agreement
shall be governed by and construed in accordance with the internal laws of the
State of Indiana, without reference to the conflicts of laws or choice of law
provisions thereof. The titles of sections and subsections herein have been
inserted as a matter of convenience of reference only and shall not control or
affect the meaning or construction of any of the terms or provisions herein. All
references herein to the singular shall include the plural, and vice versa. The
parties agree that this Agreement is
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the result of negotiation by the parties, each of whom was represented by
counsel, and thus, this Agreement shall not be construed against the maker
thereof.
18.2 NO WAIVER. Neither the failure of either party to exercise any
power given such party hereunder or to insist upon strict compliance by the
other party with its obligations hereunder, nor any custom or practice of the
parties at variance with the terms hereof shall constitute a waiver of either
party's right to demand exact compliance with the terms hereof.
18.3 ENTIRE AGREEMENT. This Agreement contains the entire agreement
of the parties hereto with respect to the Property, and no representations,
inducements, promises or agreements, oral or otherwise, between the parties not
embodied herein or incorporated herein by reference shall be of any force or
effect.
18.4 BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors and assigns
(subject to Section 14 above).
18.5 AMENDMENTS. No amendment to this Agreement shall be binding on
any of the parties hereto unless such amendment is in writing and is executed by
the party against whom enforcement of such amendment is sought.
18.6 POSSESSION. Possession of the Property shall be granted by
Seller to Buyer no later than the Closing Date, subject to the Permitted Title
Exceptions and other title matters allowed under Section 5.1 hereof.
18.7 DATE FOR PERFORMANCE. If the time period by which any right,
option or election provided under this Agreement must be exercised, or by which
any act required hereunder must be performed, or by which the Closing must be
held, expires on a Saturday, Sunday or legal or bank holiday, then such time
period shall be automatically extended through the close of business on the next
regularly scheduled business day.
18.8 RECORDING. Seller and Buyer agree that they will not record
this Agreement and that they will not record a short form of this Agreement.
18.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which,
when taken together, shall constitute but one and the same instrument.
18.10 TIME OF THE ESSENCE. Time shall be of the essence of this
Agreement and each and every term and condition hereof.
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18.11 SEVERABILITY. This Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations, and is intended, and shall for all purposes
be deemed to be, a single, integrated document setting forth all of the
agreements and understandings of the parties hereto, and superseding all prior
negotiations, understandings and agreements of such parties. If any term or
provision of this Agreement or the application thereof to any person or
circumstance shall for any reason and to any extent be held to be invalid or
unenforceable, then such term or provision shall be ignored, and to the maximum
extent possible, this Agreement shall continue in full force and effect, but
without giving effect to such term or provision.
18.12 CONFIDENTIALITY. Buyer covenants and agrees that the terms of
this Agreement, as well as the identity of the parties to the transactions
contemplated thereby and hereby, and all information concerning the Property
(including, without limitation, all information obtained by Buyer prior to the
Closing Date) shall be kept in strictest confidence by Buyer prior to the
Closing, and thereafter, if the Closing fails to occur for any reason. After the
occurrence of the Closing, Buyer may disclose that the transactions contemplated
hereby have occurred and that the Property has been sold, but shall not disclose
the Purchase Price, except to actual or prospective lenders, investors,
shareholders and governmental agencies. Notwithstanding the foregoing, nothing
contained herein shall be construed so as to prohibit Buyer from making (a) a
disclosure to officers, employees and those agents, contractors or vendors which
need to know in order to assist Buyer in its purchase of the Property, (b) any
disclosure required by law, including any such disclosure required by any
Federal, state or local governmental agency or court of competent jurisdiction,
or (c) any disclosure which is reasonably necessary to protect any such party's
interest in any action, suit or proceeding brought by or against such party and
relating to the Properties or the subject matter of this Agreement.
18.13 ATTORNEYS' FEES. In the event that either party shall bring an
action or legal proceeding for an alleged breach of any provision of this
Agreement or any representation, warranty, covenant or agreement herein set
forth, or to enforce, protect, determine or establish any term, covenant or
provision of this Agreement or the rights hereunder of either party, the
prevailing party shall be entitled to recover from the nonprevailing party, as a
part of such action or proceedings, or in a separate action brought for that
purpose, reasonable attorneys' fees and costs, expert witness fees and court
costs as may be fixed by the court or jury.
18.14 LIKE-KIND EXCHANGE. Buyer shall have the right to acquire the
Property as part of a transaction that Buyer intends to qualify as a tax-
deferred exchange under Section 1031 of the Internal Revenue Code. Seller shall
make all reasonable efforts to cooperate with Buyer, provided, however, that the
date of Closing hereunder shall not thereby be delayed, Seller shall not be
obligated to incur any additional expenses, Buyer shall defend, indemnify and
hold harmless Seller against any and all
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losses, costs, expenses and liabilities which may arise out of such tax-deferred
exchange, and Seller shall no be required to take title to any other property to
facilitate such exchange. To facilitate such exchange, Buyer shall have the
right to assign all of its right, title and interest in this Agreement to a
qualified intermediary and to require Seller to convey the Property to that
intermediary pursuant to the terms of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and sealed by its duly authorized signatory, effective as of
the day and year first above written.
SELLER:
VANSTAR CORPORATION, a Delaware
corporation
By: /s/ Robert C. Kuntzendorf
------------------------------------
Robert C. Kuntzendorf
Senior Vice President
Attest: /s/ Barbara Brown
---------------------------------
Name: Barbara Brown
---------------------------------
Title: Lease Administrator
---------------------------------
[CORPORATE SEAL]
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BUYER:
DUKE REALTY LIMITED PARTNERSHIP,
an Indiana limited partnership
By: Duke Realty Investments, Inc., an
Indiana corporation, as general partner
By: /s/ Richard W. Horn
------------------------------------
Richard W. Horn
Vice President Acquisitions
Attest: /s/ Peter N. Anderson
-------------------------------
Peter N. Anderson
Corporate Attorney
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Exhibit 10.14
LEASE AGREEMENT
THIS LEASE is executed this 3rd day of June, 1996, by and between DUKE
REALTY LIMITED PARTNERSHIP, an Indiana limited partnership ("Landlord"), and
VANSTAR CORPORATION, a Delaware corporation ("Tenant").
WITNESSETH:
ARTICLE 1 - LEASE OF PREMISES
SECTION 1.01. BASIC LEASE PROVISIONS AND DEFINITIONS.
A. Leased Premises Address: 7300-7400 Georgetown Road, Indianapolis, Indiana
46278; Building No. 131 (the "Building"); to be located in Park 100
Business Park (the "Park");
B. Rentable Area: approximately 404,900 square feet (but not to be less than
400,000 square feet);
Landlord shall use commercially reasonable standards, consistently applied,
in determining the Rentable Area. Landlord's determination of Rentable Area
made in good faith shall conclusively be deemed correct for all purposes
hereunder, including without limitation the calculation of Tenant's
Proportionate Share and Tenant's Minimum Annual Rent.
C. Tenant's Proportionate Share: 100%;
D. Minimum Annual Rent:
Year l - Year 5 $1,208,004.00 per year
Year 6 - Year 10 $1,328,004.00 per year
E. Monthly Rental Installments:
Months 1 - 60 $100,667.00 per month
Months 61-120 $110,667.00 per month
F. Landlord's Share of Expenses: n/a;
G. Term: Ten (10) years;
H. Target Commencement Date: May 1, 1997;
I. Security Deposit: $100,667.00 (see Article 4 for possible termination);
J. Guarantor(s): n/a;
K. Broker(s): n/a;
L. Permitted Use: Such uses as are in compliance with all laws, rules,
regulations, covenants, zoning and any other restrictions existing at any
time during the Lease Term;
<PAGE>
M. Address for notices:
Landlord: Duke Realty Limited Partnership
8888 Keystone Crossing, Suite 1200
Indianapolis, IN 46240
Tenant: Vanstar Corporation
Director of Real Estate
5964 W. Las Positas Blvd.
P.O. Box 9012
Pleasonton, CA 94566-9012
Address for rental and other payments:
Duke Realty Limited Partnership
P.O. Box 66259
Indianapolis, IN 46266
SECTION 1.02. LEASED PREMISES. Landlord hereby leases to Tenant and Tenant
leases from Landlord, subject to all of the terms and conditions set forth
herein, the Building described in the Basic Lease Provisions and depicted on
Exhibit A attached hereto (the "Leased Premises"). Landlord also grants to
Tenant the right to use the parking area depicted on Exhibit A which shall
adjoin the Building and which shall be for the exclusive use of the tenant(s) of
the Building.
ARTICLE 2 - TERM AND POSSESSION
SECTION 2.01. TERM. The term of this Lease ("Lease Term") shall be the
period of time specified in the Basic Lease Provisions and shall commence (the
"Commencement Date") on the later of (i) May 1, 1997, or (ii) the date that
Landlord's obligations set forth on Exhibit B attached hereto have been
substantially completed (the "Substantial Completion Date") unless the
Substantial Completion Date is delayed due to Tenant requested change orders or
Tenant caused delays ("Tenant Delays"). Upon delivery of possession of the
Leased Premises to Tenant in a satisfactory condition in conformity with this
Lease in all material respects, Tenant shall execute a letter of understanding
acknowledging (i) the Commencement Date of this Lease, and (ii) that Tenant has
accepted the Leased Premises for occupancy and that, to the best of Tenant's
knowledge, the condition of the Leased Premises (including any tenant finish
improvements constructed thereon) and the Building was at the time satisfactory
and in conformity with the provisions of this Lease in all respects (except for
matters noted on a punchlist to be mutually prepared by Landlord and Tenant
during a walk-through of the Leased Premises to be conducted by the parties
prior to occupancy). Such letter of understanding shall become a part of this
Lease. If Tenant takes possession of and occupies the Leased Premises, Tenant
shall be deemed to have accepted the Leased Premises as described above, even
though Tenant may not have executed the letter of understanding.
SECTION 2.02. CONSTRUCTION OF TENANT IMPROVEMENTS.
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Landlord shall construct in a good and workmanlike manner the Building and the
improvements designated as Landlord's obligations in the attached Exhibit B, so
that the Leased Premises will be available for Tenant's occupancy by the
Commencement Date, unless prevented by causes beyond Landlord's reasonable
control. Such improvements shall be in accordance with and at the expense of the
party indicated on Exhibit B. Landlord represents and warrants to Tenant that
the construction work designated as Landlord's obligations shall conform to the
work described in Exhibit B hereto (or as same may hereafter be modified by the
mutual agreement of the parties via change orders) in all material respects and
be performed in compliance in all material respects with all applicable laws,
rules, regulations, building codes and recorded covenants and restrictions,
including ADA governmental regulations, as are in effect at the time of such
construction.
SECTION 2.03. SURRENDER OF THE PREMISES. Upon the expiration or earlier
termination of this Lease, or upon the exercise by Landlord of its right to re-
enter the Leased Premises without terminating this Lease, Tenant shall
immediately surrender the Leased Premises to Landlord, in broom-clean condition
and in good order, condition and repair, except for ordinary wear and tear and
damage which Tenant is not obligated to repair. Tenant shall also remove its
personal property, trade fixtures and any of Tenant's alterations designated by
Landlord; promptly repair any damage caused by such removal; and restore the
Leased Premises to the condition existing prior to the installation of the items
so removed. If Tenant fails to do so, Landlord may restore the Leased Premises
to such condition at Tenant's expense, and Landlord may cause all of said
property to be removed at Tenant's expense, and Tenant hereby agrees to pay all
the costs and expenses thereby reasonably incurred. All property of Tenant which
is not removed within ten (10) days following Landlord's written demand therefor
shall be conclusively deemed to have been abandoned by Tenant, and Landlord
shall be entitled to dispose of such property without thereby incurring any
liability to Tenant. The provisions of this section shall survive the expiration
or other termination of this Lease.
SECTION 2.04. HOLDING OVER. If Tenant retains possession of the Leased
Premises after the expiration or earlier termination of this Lease, Tenant shall
become a tenant from month to month at 125% of the Monthly Rental Installment in
effect at the end of the Lease Term (plus Additional Rent as provided in Article
3 hereof), and otherwise upon the terms, covenants and conditions herein
specified, so far as applicable. Acceptance by Landlord of rent after such
expiration or earlier termination shall not result in a renewal of this Lease,
and Tenant shall vacate and surrender the Leased Premises to Landlord upon
Tenant being given thirty (30) days prior written notice from Landlord to
vacate.
ARTICLE 3 - RENT
SECTION 3.01. BASE RENT. Tenant shall pay to Landlord as Minimum Annual
Rent for the Leased Premises the sum specified in the Basic Lease Provisions,
payable in equal consecutive Monthly Rental Installments, in advance, without
deduction or offset, beginning on the Commencement Date and on or before the
first
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day of each and every calendar month thereafter during the Lease Term. The
Monthly Rental Installment for partial calendar months shall be prorated based
on the number of days during the month this Lease was in effect in relation to
the total number of days in such month.
SECTION 3.02. ADDITIONAL RENT. In addition to the Minimum Annual Rent
Specified in this Lease, Tenant agrees to pay to Landlord for each calendar year
during the Lease Term, as "Additional Rent," (i) Tenant's Proportionate Share
(as described in the Basic Lease Provisions) of all costs, charges and expenses
paid or incurred by Landlord during the Lease Term for Operating Expenses for
the Building and appurtenant common areas, and (ii) Tenant's Proportionate Share
of all Real Estate Taxes for the Building and appurtenant common areas which are
payable with respect to the time period during which Tenant leases the Leased
Premises pursuant to this Lease. For example, assuming the Commencement Date is
May 1, 1997, the first Real Estate Tax bill for which Tenant would be
responsible would be Tenant's proportionate one third (1/3) portion of the tax
bill for the first half of calendar year 1997 which is payable on May 10, 1998.
Further, Tenant acknowledges that this method of payment of Real Estate Taxes in
arrears will require Tenant to be responsible to Landlord for its proportionate
share if Real Estate Taxes payable subsequent to the expiration or other
termination of this Lease, and therefore agrees that Tenant's obligations with
respect to the payment of Real Estate Taxes shall survive the expiration or
other termination of this Lease.
"Operating Expenses" shall mean all of Landlord's expenses for operation,
repair, replacement and maintenance as necessary to keep the Building and
appurtenant common areas in good order, condition and repair (including all
additional direct costs and expenses of operation and maintenance of the
Building which Landlord reasonably determines it would have paid or incurred
during such year if the Building had been fully occupied), including, but not
limited to, management fees; utilities; stormwater discharge fees; license,
permit, inspection and other fees; environmental and pollution testing and
consultation fees related thereto; fees and assessments imposed by any covenants
or owners, association; tools and supplies; security services; insurance
premiums; and maintenance and repair of the driveways and parking areas
(including snow removal), exterior lighting facilities, landscaped areas,
walkways, curbs, drainage strips, sewer lines, exterior walls, foundation,
structural frame, roof and gutters. Notwithstanding the foregoing, Operating
Expenses shall not include costs of capital improvements unless such capital
improvements are required by any governmental authority, law or regulation, in
which event such capital expenditure shall be amortized pursuant to generally
accepted accounting principles, and only the amortized portion thereof shall be
included in Operating Expenses each year. To the extent that any of the
foregoing Operating Expenses are incurred with respect to work performed or
services provided by an affiliate of Landlord, such Operating Expenses shall not
exceed the amounts that would have been paid to unaffiliated parties for
work/services of similar quantity and quality.
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"Real Estate Taxes" shall include any form of real estate tax or
assessment, general, special, ordinary or extraordinary, and any license fee,
commercial rental tax, improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) imposed upon the Leased Premises
(or against Landlord's business of leasing the Building) by any authority having
the direct or indirect power to tax, together with costs and expenses of
contesting the validity or amount of Real Estate Taxes. If the property is not
separately assessed, then Tenant's liability shall be an equitable proportion of
the real estate taxes for all of the land and improvements included within the
tax parcel assessed. Landlord's reasonable determination thereof, in good faith,
shall be conclusive. Notwithstanding the foregoing, Tenant has the right to
appeal any Real Estate Tax assessment involving the Building, the Leased
Premises or associated land or common areas which Tenant may be obligated to
pay, and Landlord agrees to cooperate in good faith with Tenant in this regard.
Tenant shall pay, prior to delinquency, all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant contained in the Leased Premises or elsewhere. Tenant shall
cause such trade fixtures, furniture, equipment and all other personal property
to be assessed and billed separately from the Leased Premises.
SECTION 3.03. PAYMENT OF ADDITIONAL RENT. Landlord shall be entitled to
estimate the total amount of Additional Rent to be paid by Tenant during each
calendar year of the Lease Term, whereupon commencing on the Commencement Date,
Tenant shall pay to Landlord each month, at the same time the Monthly Rental
Installment is due, an amount equal to one-twelfth (1/12) of the estimated
Additional Rent for such year. Within a reasonable time after the end of each
calendar year, Landlord shall submit to Tenant a statement of the actual amount
of such Additional Rent and within thirty (30) days after receipt of such
statement, Tenant shall pay any deficiency between the actual amount owed and
the estimates paid during such calendar year, or in the event of overpayment,
Landlord shall credit the amount of such overpayment, Landlord shall credit the
amount of such overpayment toward the next installments of Minimum Rent. To the
extent that the Lease Term includes any partial calendar years, the Additional
Rent included in this section shall be prorated based upon the number of days in
such calendar year included within the Lease Term divided by 360.
Notwithstanding the foregoing provisions of this Section 3.03, so long as Tenant
is not in default under this Lease, Tenant shall not be required to pay the
portion of the Additional Rent attributable to Real Estate Taxes on a monthly
basis; rather, Tenant shall simply be required to pay the Real Estate Taxes
prior to delinquency and shall furnish Landlord with evidence of such payment at
least ten (10) days prior to the date such payment becomes delinquent. In this
regard, Landlord agrees to timely forward to Tenant for payment all bills
received by Landlord with respect to Real Estate Taxes.
SECTION 3.04. LATE CHARGES. Tenant acknowledges that Landlord shall incur
certain additional unanticipated costs and expenses, including administrative
costs and attorneys' fees, if Tenant fails to timely pay any payment required
hereunder.
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Therefore, as compensation for such additional expenses, and in addition to the
other remedies available to Landlord hereunder, if any payment of Minimum Rent
or any other sum or charge required to be paid by Tenant to Landlord hereunder
shall become overdue for a period of seven (7) days, such unpaid amount shall
bear interest from the due date thereof to the date of payment at the rate of
fifteen percent (15%) per annum. Notwithstanding the foregoing, Landlord will
provide Tenant with a written courtesy notice of such late payment and Tenant
shall have an additional five (5) days to cure such late payment before Landlord
imposes the late fee interest; provided, however, that Landlord shall not be
required to give such courtesy notice more than one (1) time during any twelve
(12) month period.
SECTION 3.05. CAP ON ASSOCIATION FEES. Tenant's obligation to pay fees and
assessments imposed by any owners' association shall be limited to Two Cents
($.02) per square foot of the Leased Premises per year.
ARTICLE IV - SECURITY DEPOSIT
Tenant, upon execution of this Lease, shall deposit with Landlord the
Security Deposit as specified in the Basic Lease Provisions as security for the
full and faithful performance by Tenant of all of the terms, conditions and
covenants contained in this Lease on the part of Tenant to be performed,
including but not limited to the payment of the rent. In the event of a default
by Tenant of any term, condition or covenant herein contained, Landlord may
apply all or any part of such security deposit to curing all or any part of such
default; and Tenant agrees to promptly, upon demand, deposit such additional sum
with Landlord as may be required to maintain the full amount of the security
deposit. All sums held by Landlord pursuant to this section shall be without
interest. Notwithstanding the foregoing, and provided that Tenant is not then in
default under this Lease, Landlord will not enforce this Security Deposit
requirement after month six (6) of the Lease Term, and such Security Deposit
presently held will be applied against Tenant's month seven (7) Rental
Installment payment.
ARTICLE 5 - USE
SECTION 5.01. USE OF LEASED PREMISES. The Leased Premises are to be used by
Tenant solely as provided in the Basic Lease Provisions, and for no other
purposes without the prior written consent of Landlord.
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SECTION 5.02. COVENANTS OF TENANT REGARDING USE. In connection with its use
of the Leased Premises, Tenant agrees to do the following:
(a) Tenant shall (i) use and maintain the Leased Premises and conduct its
business thereon in a safe, careful, reputable and lawful manner, (ii) comply
with all laws, rules, regulations, orders, ordinances, directions and
requirements of any governmental authority or agency, now in force or which may
hereafter be in force, including without limitation those which shall impose
upon Landlord or Tenant any duty with respect to or triggered by a change in the
use or occupation of, or any improvement or alteration to, the Leased Premises,
and (iii) comply with and obey all reasonable directions of the Landlord,
including any Rules and Regulations that may be adopted by Landlord from time to
time. Landlord represents to Tenant that no such Rules and Regulations currently
exist with respect to the Leased Premises other than the recorded restrictive
covenants for Park 100, a copy of which has heretofore been delivered to Tenant
by Landlord.
(b) Tenant shall not (i) use the Leased Premises for any unlawful purpose
or act, (ii) commit or permit any waste or damage to the Leased Premises, (iii)
store any inventory, equipment or any other materials outside the Leased
Premises, or (iv) do or permit anything to be done in or about the Leased
Premises or appurtenant common areas which constitutes a nuisance or which will
in any way obstruct or interfere with the rights of other tenants or occupants
of the Building or injure or annoy them. Landlord shall not be responsible to
Tenant for the nonperformance by any other tenant or occupant of the Building of
its lease or of any Rules and Regulations.
(c) Tenant shall not overload the floors of the Leased Premises as to cause
damage to the floor. All damage to the floor structure or foundation of the
Building due to improper positioning or storage of items or materials shall be
repaired by Landlord at the sole expense of Tenant, who shall reimburse Landlord
immediately therefor upon demand.
(d) Tenant shall not use the Leased Premises, or allow the Leased Premises
to be used, for any purpose or in any manner which would, in Landlord's opinion,
invalidate any policy of insurance now or hereafter carried on the Building or
increase the rate of premiums payable on any such insurance policy. Should
Tenant fail to comply with this covenant, Landlord may, at its option, require
Tenant to stop engaging in such activity or to reimburse Landlord as Additional
Rent for any increase in premiums charged during the term of this Lease on the
insurance carried by Landlord on the Leased Premises and attributable to the use
being made of the Leased Premises by Tenant.
(e) Tenant may, at its own expense, erect a sign concerning its business
which shall be in keeping with the decor and other signs on the Building,
provided that such sign is first approved by Landlord in writing. Landlord's
approval, if given, may be conditioned upon such criteria as Landlord deems
appropriate to maintain the area in a neat and attractive manner. Tenant agrees
to maintain any sign in good state of repair, and upon expiration of the Lease
Term, Tenant shall promptly remove the sign and repair any resulting damage to
the Leased Premises or Building.
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SECTION 5.03. LANDLORD'S RIGHTS REGARDING USE. In addition to the rights
specified elsewhere in this Lease, Landlord shall have the following rights
regarding the use of the Leased Premises or the appurtenant common areas by
Tenant, its employees, agents, customers and invitees, each of which may be
exercised without notice or liability to Tenant:
(a) Landlord may install such signs, advertisements, notices or tenant
identification information as it shall deem necessary or proper, provided such
installation is limited to the last year of the Lease Term, or is otherwise done
with Tenant's written consent, which consent shall not be unreasonably withheld,
conditioned or delayed.
(b) Landlord shall not have the right at any time to change or otherwise
alter the appurtenant common areas which are part of the land depicted on
Exhibit A hereto unless and until Landlord has obtained Tenant's prior written
consent to any such alteration, which consent will not be unreasonably withheld,
conditioned or delayed.
(c) Landlord or Landlord's agent shall be permitted to inspect or examine
the Leased Premises at any reasonable time, and Landlord shall have the right to
make any repairs to the Leased Premises which are necessary for its
preservation; provided, however, that any repairs made by Landlord shall be at
Tenant's expense, except as provided in SECTION 7.02 hereof. If Tenant is not
present to open and permit such entry into the Leased Premises at any time when
such entry is necessary or permitted hereunder, Landlord and its employees and
agents may enter the Leased Premises by means of a master or pass key or
otherwise. Landlord shall incur no liability to Tenant for such entry, nor shall
such entry constitute an eviction of Tenant or a termination of this Lease, or
entitle Tenant to any abatement of rent therefor.
ARTICLE 6 - UTILITIES AND SERVICES
Tenant shall obtain in its own name and shall pay directly to the
appropriate supplier the cost of all utilities and services serving the Leased
Premises, including but not limited to: natural gas, heat, light, electrical
power, telephone, janitorial service, refuse disposal and other utilities and
services. However, if any services or utilities are jointly metered with other
property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement. Landlord shall not be liable in damages or otherwise for any
failure or interruption of any utility service or other service furnished to the
Leased Premises; and no such failure or interruption shall entitle Tenant to
terminate this Lease or withhold sums due hereunder. Notwithstanding the
forgoing sentence, in the event that any failure or interruption of a utility
service continues for a period in excess of forty-eight (48) hours and such
failure or interruption resulted directly from the negligence of Landlord,
Tenant shall be entitled to abate rent to the extent that the Leased Premises
cannot reasonably be used by Tenant for Tenant's intended
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purposes. In any event, Landlord agrees to use reasonable good faith efforts to
cause the failed or interrupted utility service to be restored as soon as
possible.
ARTICLE 7 - MAINTENANCE AND REPAIRS
SECTION 7.01. TENANT'S RESPONSIBILITY. During the term of this Lease,
Tenant shall, at its own cost and expense, maintain in good condition and repair
the interior of the Leased Premises, including but not limited to the interior
electrical systems, heating and air conditioning systems, plate glass, floors,
windows and doors (but not window and door frames), sprinkler and interior
plumbing systems. Tenant, at its expense, shall obtain a preventative
maintenance contract on the heating, ventilating and air-conditioning systems
which shall be subject to Landlord's reasonable approval. Tenant shall provide
Landlord with a copy of the preventative maintenance contract no later than
ninety (90) days after the Commencement Date. The preventative maintenance
contract shall provide for the inspection and maintenance of the heating,
ventilating and air conditioning system on not less than a semi-annual basis.
Landlord agrees to make available to Tenant to the extent that Landlord is able
to do so any and all manufacturers' warranties received by Landlord with respect
to the Building.
SECTION 7.02. LANDLORD'S RESPONSIBILITY. During the initial ten (10) year
term of this Lease, Landlord warrants the structural integrity of the roof,
exterior walls, foundation and structural frame of the Building, and Landlord
shall during such time period, at Landlord's sole cost and expense, remedy any
such structural defects unless caused by the negligence, misuse, or default of
Tenant, its employees, agents, customers or invitees, in which event such costs
shall be at Tenant's expense. This warranty does not cover routine maintenance
and repairs, or consequential costs incurred by Tenant with respect to such
failure. This warranty with respect to the structural integrity of the roof
shall apply to the major components of the roof system only, which shall include
the bar joist, deck, roof insulation and single membrane material. In addition
to the forgoing warranty, Landlord warrants that the Building will be free from
material defects in materials and workmanship for a period of one (1) year from
the Commencement Date. Additionally, during the Lease Term, Landlord shall
maintain in good condition and repair the roof, exterior walls, foundation and
structural frame of the Building, and the parking and landscaped areas, the cost
of which (except as provided otherwise in the foregoing sentences of this
Section 7.02) shall be included in Operating Expenses; provided, however, that
to the extent that any of the foregoing items require repair because of the
negligence, misuse or default of Tenant, its employees, agents, customers or
invitees, Landlord shall make such repairs at Tenant's expense.
SECTION 7.03. ALTERATIONS. Tenant shall not permit structural or non-
structural alterations or additions in or to the Leased Premises unless and
until the plans have been approved by Landlord in writing, which approval shall
not be unreasonably withheld, conditioned or delayed. As a condition
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of such approval, Landlord may require Tenant to remove the alterations and
restore the Leased Premises upon termination of this Lease; otherwise, all such
alterations or improvements, except movable office furniture and equipment and
trade fixtures (including Tenant's distribution equipment which is to be
attached to the floor of the Leased Premises), shall at Landlord's option become
a part of the realty and the property of Landlord, and shall not be removed by
Tenant. If Landlord consents to Tenant's performance of alterations or additions
to the Leased Premises, Tenant shall ensure that all alterations and
improvements which are made or necessitated thereby shall be made in accordance
with all applicable laws, regulations and building codes, in a good and
workmanlike manner and in quality equal to or better than the original
construction of the Building. Landlord's approval of the plans, specifications
and working drawings for Tenant's alterations shall create no responsibility or
liability on the part of Landlord for their completeness, design sufficiency, or
compliance with all laws, rules and regulations of governmental agencies or
authorities. Tenant shall indemnify and save harmless Landlord from all costs,
loss or expense in connection with any construction or installation. No person
shall be entitled to any lien directly or indirectly derived through or under
Tenant or through or by virtue of any act or omission of Tenant upon the Leased
Premises for any improvements or fixtures made thereon or installed therein or
for or on account of any labor or material furnished to the Leased Premises or
for or on account of any matter or thing whatsoever; and nothing in this Lease
contained shall be construed to constitute a consent by Landlord to the creation
of any lien. If any lien is filed against the Leased Premises for work claimed
to have been done for, or material claimed to have been furnished to, Tenant,
Tenant shall cause such lien to be discharged of record within thirty (30) days
after filing by bonding or in any other lawful manner. Tenant shall indemnify
and save harmless Landlord from all costs, losses, expenses, and attorneys' fees
in connection with any such lien.
ARTICLE 8 - CASUALTY
SECTION 8.01. CASUALTY. In the event of total or partial destruction of the
Building or the Leased Premises by fire or other casualty, Landlord agrees to
promptly restore and repair the Leased Premises at Landlord's expense; provided,
however, that as to the tenant finish improvements Landlord's obligation
hereunder shall be limited to the reconstruction of such of the tenant finish
improvements as were originally required to be made by Landlord, if any. Any
insurance proceeds not used by Landlord in restoring or repairing the Leased
Premises shall be the sole property of Landlord. Rent shall proportionately
abate during the time that the Leased Premises or part thereof are unusable
because of any such damage thereto. Notwithstanding the foregoing, if the Leased
Premises are (i) so destroyed that they cannot be repaired or rebuilt within one
hundred eighty (180) days from the date of the casualty event; or (ii) destroyed
by a casualty which is not covered by the insurance required hereunder or, if
covered, such insurance proceeds are not released by any mortgagee entitled
thereto or are insufficient to rebuild the Building and the Leased Premises;
then, in case of a clause (i) casualty, either Landlord or Tenant may, or, in
the case of a clause (ii) casualty, then Landlord may, upon thirty (30) days
written notice to the other party, terminate and cancel this
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Lease; and all further obligations hereunder shall thereupon cease and
terminate. In the event that a casualty occurs, Landlord will use reasonable
good faith efforts to locate substitute temporary space for Tenant within the
Park during the time that the Leased premises are being restored or rebuilt.
SECTION 8.02. FIRE AND EXTENDED COVERAGE INSURANCE. During the term of this
Lease, Landlord shall maintain fire and extended coverage insurance on the
Building, but shall not protect Tenant's property on the Leased Premises; and,
notwithstanding the provisions of SECTION 9.01, Landlord shall not be liable for
any damage to Tenant's property, regardless of cause, including the negligence
of Landlord and its employees, agents, and invitees. Tenant hereby expressly
waives any right of recovery against Landlord (or any other tenant of the
Building) for damage to any property of Tenant located in or about the Leased
Premises, however caused, including the negligence of Landlord and its
employees, agents, and invitees; and, notwithstanding the provisions of
SECTION 9.01 below, Landlord hereby expressly waives any rights of recovery
against Tenant for damage to the Leased Premises or the Building which is
caused by fire or other casua1ty of whatever nature (except for any insurance
deductible amount paid by Landlord in the event that the fire or other
casualty event results from the negligence of Tenant or its employees, agents
or contractors). All insurance policies maintained by Landlord or Tenant as
provided in this Lease shall contain an agreement by the insurer waiving the
insurer's right of subrogation against the other party to this Lease and
agreeing not to acquire any rights of recovery which the insured has expressly
waived prior to loss. [See attached page 11-a.]
ARTICLE 9 - LIABILITY INSURANCE
SECTION 9.01. TENANT'S RESPONSIBILITY. Landlord shall not be liable to
Tenant or to any other person for (i) damage to property or injury or death to
persons due to the condition of the Leased Premises, the Building or the
appurtenant common areas or (ii) the occurrence of any accident in or about the
Leased Promises or the appurtenant common areas, or (iii) any act or neglect of
Tenant or any other tenant or occupant of the Building or of any other person,
unless and to the extent such damage, injury or death is directly the result of
Landlord's negligence; and Tenant hereby releases Landlord from any and all
liability for the same. Tenant shall be liable for, and shall indemnify and
defend Landlord and hold it harmless from, any and all liability for (i) any act
or neglect of Tenant and any person coming on the Leased Premises or appurtenant
common areas by the license of Tenant, express or implied, (ii) any damage to
the Leased Premises, and (iii) any loss of or damage or injury to any person
(including death resulting therefrom) or property occurring in, on or about the
Leased Premises, regardless of cause, except in each case for any loss or damage
from fire or other casualty of whatever nature (provided, however, that Tenant
shall be responsible to Landlord for any insurance deductible amount paid by
Landlord, up to the maximum amount of $100,000, in the event that the fire or
other casualty event results from the negligence of Tenant or its employees,
agents or contractors) and except to the extent for that caused directly by
Landlord's negligence. Notwithstanding the
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(Insert to Section. 8.02)
Notwithstanding the foregoing provisions of Section 8.02, in the event that
Tenant is able to procure the fire and extended coverage insurance on the
Building that Landlord is required to maintain hereunder at rates below the
rates obtainable by Landlord, Tenant shall have the option upon at least thirty
(30) days prior written notice to Landlord to be the party responsible hereunder
for obtaining such insurance. Such insurance must be with a company rated by
BEST'S equal to or greater than the rating given to Landlord's carrier, the
insurance must be for the full replacement value of the Building, and the
coverage provided must include all matters covered by the insurance that was
previously obtained or to be obtained by Landlord. Additionally, the insurance
deductible amount must be no greater than $10,000. Finally, the insurance policy
or policies must name Landlord as the insured, and must provide that they may
not be cancelled on less than thirty (30) days prior written notice to Landlord.
Tenant shall furnish Landlord with Certificates of Insurance evidencing all
required coverage. In the event that Tenant fails to carry such insurance and
furnish Landlord with such Certificates of Insurance after a request to do so,
Landlord shall have the right to obtain such insurance collect the cost thereof
from Tenant as Additional Rent.
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foregoing, Tenant shall bear the risk of any loss or damage to its property as
provided in SECTION 8.02.
SECTION 9.02. TENANT'S INSURANCE. Tenant, in order to insure against the
liabilities specified in this Lease, shall at all times during the term of this
Lease carry, at its own expense, one or more policies of general public
liability and property damage insurance, issued by one or more insurance
companies acceptable to Landlord, with the following minimum coverages:
A. Worker's Compensation: minimum statutory amount.
B. Comprehensive General Liability Insurance, including blanket, contractual
liability, broad form property damage, personal injury, completed
operations, products liability, and fire damage: Not less than $1,000,000
Combined Single Limit for both bodily injury and property damage.
C. Fire and Extended Coverage, Vandalism and Malicious Mischief, and Sprinkler
Leakage insurance, if applicable, for the full cost of replacement of
Tenant's property.
D. Business interruption insurance.
The insurance policy or policies referenced in B and C above shall protect
Tenant and Landlord as their interests may appear, naming Landlord and
Landlord's managing agent and mortgagee as additional insureds, and shall
provide that they may not be cancelled on less than thirty (30) days prior
written notice to Landlord. Tenant shall furnish Landlord with Certificates of
Insurance evidencing all required coverage. Should Tenant fail to carry such
insurance and furnish Landlord with such Certificates of Insurance after a
request to do so, Landlord shall have the right to obtain such insurance and
collect the cost thereof from Tenant as additional rent.
ARTICLE 10 - EMINENT DOMAIN
If all or any substantial part of the Building or appurtenant common areas
shall be acquired by the exercise of eminent domain, Landlord may terminate this
Lease by giving written notice to Tenant within fifteen (15) days after
possession thereof is so taken unless Tenant confirms in writing to Landlord
within five (5) days after receipt of such notice from Landlord that the balance
of the Building/appurtenant common areas after such taking is sufficient for
Tenant's purposes without offset or abatement. If all or any substantial part of
the Building or appurtenant common areas shall be acquired by the exercise of
eminent domain in such a manner that Tenant's use of the Leased Premises shall
become materially, adversely affected and Landlord fails within a reasonable
time to reasonably remedy such adverse impact, Tenant may terminate this Lease
by giving written notice to Landlord within fifteen (15) days after possession
thereof is so taken. Tenant shall have no claim against Landlord on account of
any such acquisition for the value of any unexpired lease term remaining after
possession of the Leased Premises is taken. All damages awarded shall belong to
and be the sole property of Landlord; provided,
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however, that Tenant shall be entitled to any award expressly made to Tenant by
any governmental authority for the cost of or the removal of Tenant's stock,
equipment and fixtures and other moving expenses.
ARTICLE 11 - ASSIGNMENT AND SUBLEASE
Tenant shall not assign this Lease or sublet the Leased Premises in whole
or in part without Landlord's prior written consent, which consent shall not be
unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing,
Landlord shall allow Tenant to assign or sublease the Leased Premises to an
entity controlled by, controlling, or under common control with, Tenant,
provided (i) Landlord is given prior notice of Tenant's desire to assign or
sublease to such entity, and (ii) Landlord does not respond to Tenant's notice
within ten (10) days of receipt with its disapproval of the assignment or
sublease. In the event of an assignment or subletting, Tenant shall remain
primarily liable to perform all of the covenants and conditions contained in
this Lease, including but not limited to payment of Minimum Rent and Additional
Rent as provided herein. The acceptance of rent from any other person shall not
be deemed to be a waiver of any of the provisions of this Lease or to be a
consent to the assignment of this Lease or the subletting of the Leased
Premises.
Without in any way limiting Landlord's right to refuse to consent to any
assignment or subletting of this Lease, Landlord reserves the right to refuse to
give such consent if in Landlord's discretion and opinion (i) the use of the
Leased Premises is or may be in any way adversely affected; or (ii) the business
reputation of the proposed assignee or subtenant is deemed unacceptable.
Landlord further expressly reserves the right to refuse to give its consent to
any subletting if the proposed rent is to be less than the then current rent for
similar premises in the Park. Tenant agrees to reimburse Landlord for reasonable
accounting and attorneys' fees incurred in conjunction with the processing and
documentation of any such requested transfer, assignment, subletting or any
other hypothecation of this Lease or Tenant's interest in and to the Leased
Premises.
ARTICLE 12 - TRANSFERS BY LANDLORD
SECTION 12.01. SALE AND CONVEYANCE OF THE BUILDING. Landlord shall have the
right to sell and convey the Building at any time during the term of this Lease,
subject only to the rights of Tenant hereunder; and such sale and conveyance
shall operate to release Landlord from liability hereunder after the date of
such conveyance.
SECTION 12.02. SUBORDINATION AND ESTOPPEL CERTIFICATE. Landlord shall have
the right to subordinate this Lease to any mortgage presently existing or
hereafter placed upon the Building by so declaring in such mortgage; and the
recording of any such mortgage shall make it prior and superior to this Lease
regardless of the date of execution or recording of either document; provided,
however, such subordination shall be conditioned upon such mortgagee's covenant
and agreement that
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neither this Lease, nor the estate, or rights created thereby, nor any rights of
Tenant under this Lease will be discharged by any foreclosure of the mortgage,
or deed in lieu of foreclosure, or by any sale of the Building pursuant to any
foreclosure sale, subsequent transfer or otherwise and will remain undisturbed
and unaffected thereby and will continue undisturbed, and upon condition that
such mortgagee, or such other purchaser or transferee shall accept and assume
the obligations of Landlord under this Lease, and Tenant will and hereby does
attorn to such mortgagee, or such other purchaser or transferee, at such sale so
that the relationship of landlord and tenant shall exist between such mortgagor,
or such other purchaser or transferee and Tenant. Such assumption and attornment
by each party to be effective and self-operative without the execution of any
further instrument immediately upon such mortgagee's or such other parties'
succeeding to the interest in the Leased Premises. Within twenty-one (21) days
following receipt of a written request from Landlord, Tenant shall execute and
deliver to Landlord, without cost:
(a) any instrument which Landlord or Tenant may deem necessary or desirable
to confirm the subordination of this Lease and the non-disturbance of Tenant's
rights hereunder; and thereafter within twenty-one (21) days Landlord shall use
good faith efforts to cause mortgagee to execute and deliver to Tenant such
instrument without cost.
(b) an estoppel certificate in such form as Landlord may reasonably request
certifying (i) that this Lease is in full force and effect and unmodified (or,
if modified, stating the nature of such modification), (ii) the date to which
rent has been paid, (iii) that there are not, to Tenant's knowledge, any uncured
defaults (or specifying such defaults if any are claimed), and (iv) any other
matters or state of facts reasonably required respecting the Lease or Tenant's
occupancy of the Leased Premises. Such estoppel may be relied upon by Landlord
and by any purchaser or mortgagee of all or any part of the Building. Tenant's
failure to deliver such statement within such period shall be conclusive upon
Tenant that this Lease is in full force and effect and unmodified and that there
are no uncured defaults in Landlord's performance hereunder.
(c) Notwithstanding the foregoing, if the mortgagee or any other party
shall take title to the Leased Premises through foreclosure or deed in lieu of
foreclosure, or as a result of any foreclosure sale, subsequent transfer or
otherwise, Tenant shall be allowed to continue in possession of the Leased
Premises as provided for in this Lease so long as Tenant shall not be in default
and the acquiring party shall be deemed for all purposes to have assumed
Landlord's obligations under this Lease. Tenant shall, in the event any
proceedings are brought to foreclose any such mortgage, attorn to the purchaser
upon any such foreclosure and recognize such purchaser as the landlord under
this Lease.
SECTION 12.03. LENDER'S RIGHTS. Landlord shall have the right, at any time
and from time to time, to notify Tenant in writing that Landlord has placed a
mortgage on the Building, specifying the identity of the Lender ("Lender").
Following receipt of such notice, Tenant agrees to give such Lender a copy
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of any notice of default served by Tenant on Landlord. Tenant further agrees
that if Landlord fails to cure any default as provided in SECTION 13.03 herein,
Lender shall have an additional thirty (30) days within which to cure such
default; provided, however, that if the term, condition, covenant or obligation
to be performed by Landlord is of such nature that the same cannot reasonably be
performed within such thirty-day period, such default shall be deemed to have
been cured if Lender commences such performance within said thirty-day period
and thereafter diligently completes the same.
ARTICLE 13 - DEFAULT AND REMEDY
SECTION 13.01. DEFAULT. The occurrence of any of the following shall be
deemed an "Event of Default":
(a) Tenant shall fail to pay any Monthly Rental Installment or Additional
Rent within five (5) days after the same shall be due and payable, or Tenant
shall fail to pay any other amounts due Landlord from Tenant within ten (10)
days after the same shall be due and payable.
(b) Tenant shall fail to perform or observe any term, condition, covenant
or obligation as required under this Lease for a period of thirty (30) days
after notice thereof from Landlord; provided, however, that if the nature of
Tenant's default is such that more than thirty days are reasonably required to
cure, then such default shall be deemed to have been cured if Tenant commences
such performance within said thirty-day period and thereafter diligently
completes the required action within a reasonable time.
(c) Tenant shall vacate or abandon the Leased Premises for any period, or
fail to occupy the Leased Premises or any substantial portion thereof for a
period of thirty (30) days.
(d) All or substantially all of Tenant's assets in the Leased Premises or
Tenant's interest in this Lease are attached or levied under execution (and
Tenant does not discharge the same within sixty (60) days thereafter); a
petition in bankruptcy, insolvency, or for reorganization or arrangement is
filed by or against Tenant (and Tenant fails to secure a stay or discharge
thereof within sixty (60) days thereafter); Tenant shall be insolvent and unable
to pay its debts as they become due; Tenant makes a general assignment for the
benefit of creditors; Tenant takes the benefit of any insolvency action or law;
the appointment of a receiver or trustee in bankruptcy for Tenant or its assets
if such receivership has not been vacated or set aside within thirty (30) days
thereafter; dissolution or other termination of Tenant's corporate charter if
Tenant is a corporation.
SECTION 13.02. REMEDIES. Upon the occurrence of any Event of Default,
Landlord shall have the following rights and remedies, in addition to those
allowed by law, any one or more of which may be exercised without further notice
to or demand upon Tenant:
(a) Landlord may apply the security deposit, if any, or re-enter the Leased
Premises and cure any default of Tenant, and Tenant shall reimburse Landlord as
additional rent for any costs and expenses which Landlord thereby incurs; and
Landlord shall
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not be liable to Tenant for any loss or damage which Tenant may sustain by
reason of Landlord's action, unless and to the extent caused directly by
Landlord's gross negligence or willful misconduct.
(b) Landlord may terminate this Lease or, without terminating this Lease,
terminate Tenant's right to possession of the Leased Premises as of the date of
such default, and thereafter (i) neither Tenant nor any person claiming under or
through Tenant shall be entitled to possession of the Leased Premises, and
Tenant shall immediately surrender the Leased Premises to Landlord; and (ii)
Landlord may re-enter the Leased Premises and dispossess Tenant and any other
occupants of the Leased Premises by any lawful means and may remove their
effects, without prejudice to any other remedy which Landlord may have. Upon the
termination of this Lease, Landlord may declare the present value (as reasonably
determined by Landlord) of all rent which would have been due under this Lease
for the balance of the Lease Term, less the present value of any rental amounts
that Landlord (as reasonably determined by Landlord) would be able to recover
during such unexpired Lease Term, to be immediately due and payable, whereupon
Tenant shall be obligated to pay the same to Landlord, together with all loss or
damage which Landlord may sustain by reason of Tenant's default ("Default
Damages"), which shall include without limitation expenses of preparing the
Leased Premises for re-letting, demolition, repairs, tenant finish improvements,
and brokers' and attorneys' fees, it being expressly understood and agreed that
the liabilities and remedies specified in this subsection (b) shall survive the
termination of this Lease.
(c) Landlord may, without terminating this Lease, re-enter the Leased
Premises and re-let all or any part thereof for a term different from that which
would otherwise have constituted the balance of the Lease Term and for rent and
on terms and conditions different from those contained herein, whereupon Tenant
shall be immediately obligated to pay to Landlord as liquidated damages the
difference between the rent provided for herein and that provided for in any
lease covering a subsequent re-letting of the Leased Premises, for the period
which would otherwise have constituted the balance of the Lease Term, together
with all of Landlord's Default Damages.
(d) Landlord may sue for injunctive relief or to recover damages for any
loss resulting from the breach.
(e) In addition to the defaults and remedies described above, the parties
hereto agree that if Tenant defaults in the performance of any (but not
necessarily the same) term or condition of this Lease three (3) or more times
during any twelve (12) month period, regardless of whether such defaults are
ultimately cured, then such conduct shall, at Landlord's option, represent a
separate Event of Default.
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SECTION 13.03. LANDLORD'S DEFAULT AND TENANT'S REMEDIES. Landlord shall be
in default if it shall fail to perform or observe any term, condition, covenant
or obligation as required under this Lease for a period of thirty (30) days
after written notice thereof from Tenant to Landlord and to Lender, if any;
provided, however, that if the term, condition, covenant or obligation to be
performed by Landlord is of such nature that the same cannot reasonably be
performed within such thirty-day period and does not materially impact the
conduct of Tenant's business in the Leased Premises, such default shall be
deemed to have been cured if Landlord commences such performance within said
thirty-day period and thereafter diligently undertakes to complete the same.
Notwithstanding the foregoing sentence, the parties hereto agree that if
Landlord defaults in the performance of any material term or condition of this
Lease three (3) or more times during any twelve (12) month period, regardless of
whether such defaults are ultimately cured, then such conduct shall, at Tenant's
option, represent a separate default by Landlord for which the foregoing cure
period will not apply. Upon the occurrence of any such default, Tenant may sue
for injunctive relief or to recover damages for any loss resulting from the
breach, but Tenant shall not be entitled to terminate this Lease or withhold,
offset or abate any rent due hereunder except against Additional Rent after
obtaining a judgment from a court of competent jurisdiction.
SECTION 13.04. LIMITATION OF LANDLORD'S LIABILITY. If Landlord shall fail
to perform or observe any term, condition, covenant or obligation required to be
performed or observed by it under this Lease and if Tenant shall, as a
consequence thereof, recover a money judgment against Landlord (whether
compensatory or punitive in nature), Tenant agrees that it shall look solely to
Landlord's right, title and interest in and to the Building for the collection
of such judgment; and Tenant further agrees that no other assets of Landlord
shall be subject to levy, execution or other process for the satisfaction of
Tenant's judgment and that Landlord shall not be personally liable for any
deficiency.
The references to "Landlord" in this Lease shall be limited to mean and
include only the owner or owners, at the time, of the fee simple interest in the
Building. In the event of a sale or transfer of such interest (except a mortgage
or other transfer as security for a debt), the "Landlord" named herein, or, in
the case of a subsequent transfer, the transferor, shall, after the date of such
transfer, be automatically released from all liability for the performance or
observance of any term, condition, covenant or obligation required to be
performed or observed by Landlord hereunder; and the transferee shall be deemed
to have assumed all of such terms, conditions, covenants and obligations.
Notwithstanding the foregoing, if at any time the loan to value ratio with
respect to the Building exceeds eighty-five percent (85%) collectively for any
and all mortgages on the Building, this Section 13.04 shall not have any effect
on liabilities of Landlord to the extent of the outstanding principal balance
collectively of all mortgages against the Building less eighty-five percent
(85%) of the fair market value of the Building.
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SECTION 13.05. NONWAIVER OF DEFAULTS. Neither party's failure or delay in
exercising any of its rights or remedies or other provisions of this Lease shall
be construed to be a waiver thereof or affect its right thereafter to exercise
or enforce each and every such right or remedy or other provision. No waiver of
any default shall be deemed to be a waiver of any other default. Landlord's
receipt of less than the full rent due shall not be construed to be other than a
payment on account of rent then due, nor shall any statement on Tenant's check
or any letter accompanying Tenant's check be deemed an accord and satisfaction,
and Landlord may accept such payment without prejudice to Landlord's right to
recover the balance of the rent due or to pursue any other remedies provided in
this Lease. No act or omission by Landlord or its employees or agents during the
term of this Lease shall be deemed an acceptance of a surrender of the Leased
Premises, and no agreement to accept such a surrender shall be valid unless in
writing and signed by Landlord.
SECTION 13.06. ATTORNEYS' FEES. If either party defaults in the performance
or observance of any of the terms, conditions, covenants or obligations
contained in this Lease and the non-defaulting party incurs legal expenses to
enforce the terms of this Lease against the defaulting party, then the
defaulting party agrees to reimburse the non-defaulting party for the
attorneys' fees incurred thereby.
ARTICLE 14 - LANDLORD'S RIGHT TO RELOCATE TENANT.
[INTENTIONALLY OMITTED.]
ARTICLE 15 - NOTICE AND PLACE OF PAYMENT
SECTION 15.01. NOTICES. Any notice required or permitted to be given under
this Lease or by law shall be deemed to have been given if it is written and
delivered in person or by overnight courier or mailed by certified mail, postage
prepaid, to (i) the party who is to receive such notice at the address specified
in the Basic Lease Provisions and (ii) in the case of a default notice from
Tenant to Landlord, any Lender designated by Landlord. When so mailed, the
notice shall be deemed to have been given as of the date it was mailed. Either
party may
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change its address by giving written notice thereof to the other party.
SECTION 15.02. PLACE OF PAYMENT. All payments required to be made by Tenant
to Landlord shall be delivered or mailed to Landlord's management agent at the
address specified in the Basic Lease Provisions or any other address Landlord
may specify from time to time by written notice to Tenant.
ARTICLE 16 - TENANT'S RESPONSIBILITY REGARDING
ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES.
SECTION 16.01. DEFINITIONS.
a. "Environmental Laws" - All federal, state and municipal laws,
ordinances, rules and regulations applicable to the environmental and ecological
condition of the Leased Premises, including, without limitation, the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; the Federal Resource Conservation and Recovery Act; the Federal Toxic
Substance Control Act; the Clean Air Act; the Clean Water Act; the rules and
regulations of the Federal Environmental Protection Agency, or any other
federal, state or municipal agency or governmental board or entity having
jurisdiction over the Leased Premises.
b. "Hazardous Substances" - Includes:
(i) Those substances included within the definitions of "hazardous
substances," "hazardous materials," "toxic substances" "solid waste" or
"infectious waste" in any of the Environmental Laws; and
(ii) Such other substances, materials and wastes which are or become
regulated under applicable local, state or federal law, or which are classified
as hazardous, toxic or infectious under present or future Environmental Laws or
other federal, state, or local laws or regulations.
SECTION 16.02. COMPLIANCE. Tenant, at its sole cost and expense, shall
promptly comply with the Environmental Laws which shall impose any duty upon
Tenant with respect to the use, occupancy, maintenance or alteration of the
Leased Premises. Tenant shall promptly comply with any notice from any source
issued pursuant to the Environmental Laws or with any notice from any insurance
company pertaining to Tenant's use, occupancy, maintenance or alteration of the
Leased Premises, whether such notice shall be served upon Landlord or Tenant.
SECTION 16.03. RESTRICTIONS ON TENANT. Tenant shall not cause or permit to
occur:
a. Any violation of the Environmental Laws related to environmental
conditions on, under, or about the Leased Premises, or arising from Tenant's use
or occupancy of the Leased Premises including, but not limited to, soil and
ground water conditions.
b. The use, generation, release, manufacture, refining, production,
processing, storage or disposal of any Hazardous Substances on, under, or about
the Leased Premises, or the transportation to or from the Leased Premises of any
Hazardous Substances, except as necessary and appropriate for general
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office use in which case the use, storage or disposal of such Hazardous
Substances shall be performed in compliance with the Environmental Laws and the
highest standards prevailing in the industry.
SECTION 16.04. NOTICES, AFFIDAVITS, ETC.
a. Tenant shall immediately notify Landlord of (i) any violation by
Tenant, its employees, agents, representatives, customers, invitees or
contractors of the Environmental Laws on, under or about the Leased Premises, or
(ii) the presence or suspected presence of any Hazardous Substances on, under or
about the Leased Premises and shall immediately deliver to Landlord any notice
received by Tenant relating to (i) and (ii) above from any source.
b. Tenant shall execute affidavits, representations and the like from
time to time, within five (5) days of Landlord's request therefor, concerning
Tenant's best knowledge and belief regarding the presence of any Hazardous
Substances on, under or about the Leased Premises.
SECTION 16.05. LANDLORD'S RIGHTS.
a. Landlord and its agent shall have the right, but not the duty, upon
advance notice (except in the case of emergency when no notice shall be
required) to inspect the Leased Premises and conduct tests thereon at any time
to determine whether or the extent to which there has been a violation of
Environmental Laws by Tenant or whether there are Hazardous Substances on, under
or about the Leased Premises. In exercising its rights herein, Landlord shall
use reasonable efforts to minimize interference with Tenant's business but such
entry shall not constitute an eviction of Tenant, in whole or in part, and
Landlord shall not be liable for any interference, loss, or damage to Tenant's
property or business caused thereby.
b. If Landlord, any lender or governmental agency shall ever require
testing to ascertain whether there has been a release of Hazardous Substances
on, under or about the Leased Premises or a violation of the Environmental Laws,
and such requirement arose in whole or in part because of an act or omission on
the part of Tenant, then the reasonable costs thereof shall be reimbursed by
Tenant to Landlord upon demand as Additional Rent.
SECTION 16.06. TENANT'S INDEMNIFICATION. Tenant shall indemnify and hold
harmless Landlord and Landlord's managing agent from any and all claims, loss,
liability, costs, expenses or damage, including attorneys' fees and costs of
remediation, incurred by Landlord in connection with any breach by Tenant of its
obligations under this Article 16. The covenants and obligations of Tenant under
this Article 16 shall survive the expiration or earlier termination of this
Lease. Notwithstanding the foregoing, Landlord acknowledges that Tenant will
have no liability to Landlord hereunder with respect to any environmental matter
or condition existing prior to the Commencement Date or to the extent such
matter is/was caused or contributed to by Landlord, its employees, agents or
contractors.
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ARTICLE 17 - MISCELLANEOUS
SECTION 17.01. BENEFIT OF LANDLORD AND TENANT. This Lease and all of the
terms and provisions hereof shall inure to the benefit of and be binding upon
Landlord and Tenant and their respective successors and assigns.
SECTION 17.02. GOVERNING LAW. This Lease shall be governed in accordance
with the laws of the State of Indiana.
SECTION 17.03. GUARANTY. [INTENTIONALLY OMITTED.]
SECTION 17.04. FORCE MAJEURE. Landlord shall be excused for the period of
any delay in the performance of any obligation hereunder when such delay is
occasioned by causes beyond its control, including, but not limited to, war,
invasion or hostility; work stoppages, boycotts, slowdowns or strikes; shortages
of materials, equipment, labor or energy; man-made or natural casualties;
unusual weather conditions; acts or omissions of governmental or political
bodies; or civil disturbances or riots.
SECTION 17.05. CONDITION OF PREMISES. Tenant acknowledges that neither
Landlord nor any agent of Landlord has made any representation or warranty with
respect to the Leased Premises or the Building or with respect to the
suitability or condition of any part thereof for the conduct of Tenant's
business except as provided in this Lease.
SECTION 17.06. EXAMINATION OF LEASE. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation of or
option for Lease, and it is not effective as a Lease or otherwise until
execution by and delivery to both Landlord and Tenant.
SECTION 17.07. INDEMNIFICATION FOR LEASING COMMISSIONS. The parties hereby
represent and warrant that the only real estate brokers involved in the
negotiation and execution of this Lease are those named in the Basic Lease
Provisions and that no other broker or person is entitled to any leasing
commission or compensation as a result of the negotiation or execution of this
Lease. Each party shall indemnify and hold the other harmless from any and all
liability for the breach of this representation and warranty on its part and
shall pay any compensation to any other broker or person who may be deemed or
held to be entitled thereto.
SECTION 17.08. QUIET ENJOYMENT. If Tenant shall perform all of the
covenants and agreements herein provided to be performed by Tenant, Tenant
shall, at all times during the Lease Term, have the quiet enjoyment and peaceful
possession of the Leased Premises.
SECTION 17.09. SEVERABILITY OF INVALID PROVISIONS. If any provision of this
Lease shall be held to be invalid, void or unenforceable, the remaining
provisions hereof shall not be
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affected or impaired, and such remaining provisions shall remain in full force
and effect.
SECTION 17.10. FINANCIAL STATEMENTS. During the Lease Term and any
extensions thereof, Tenant shall provide to Landlord on an annual basis, within
one hundred twenty (120) days following the end of Tenant's fiscal year, a copy
of Tenant's most recent annual report prepared as of the end of Tenant's fiscal
year. Such annual report shall be prepared in conformity with generally accepted
accounting principles, consistently applied.
SECTION 17.11. TENANT'S REPRESENTATIONS AND WARRANTIES. The undersigned
represents and warrants to Landlord that (i) Tenant is a Delaware that is duly
organized, validly existing and in good standing in accordance with the laws of
the state under which it was organized; (ii) all action necessary to authorize
the execution of this Lease has been taken by Tenant; and (iii) the individual
executing and delivering this Lease on behalf of Tenant has been authorized to
do so, and such execution and delivery shall bind Tenant. Tenant, at Landlord's
request, shall provide Landlord with evidence of such authority.
SECTION 17.12. REPRESENTATIONS AND INDEMNIFICATIONS. [INTENTIONALLY
OMITTED.]
SECTION 17.13. ADDITIONAL PROVISIONS. Additional provisions, if any, are
attached hereto as an Addendum, the provisions of which are incorporated herein
by reference. In the event of any inconsistencies between the provisions of this
Lease and of the Addendum, the provisions of the Addendum shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and
year first above written.
LANDLORD:
DUKE REALTY LIMITED PARTNERSHIP,
an Indiana limited partnership
By: Duke Realty Investments,
Inc., its General Partner
By: /s/ William Linville, III
--------------------------
William E. Linville, III
Vice President
Indiana Industrial Group
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TENANT:
VANSTAR CORPORATION, a Delaware
corporation
By: /s/ Robert C. Kuntzendorf
-------------------------------
Printed: Robert C. Kuntzendorf
--------------------------
Title: Senior VP
----------------------------
STATE OF California )
) SS:
COUNTY OF Alameda )
Before me, a Notary Public in and for said County and State, personally
appeared Robert C. Kuntzendorf, by me known and by me known to be the Sr. Vice
President of Vanstar Corporation, a Delaware corporation, who acknowledged the
execution of the above and foregoing Lease Agreement for and on behalf of said
corporation.
WITNESS my hand and Notarial Seal this 3rd day of June, 1996,
/s/ Constance F. McTaggart
---------------------------
Notary Public
Constance F. McTaggart
---------------------------
(Printed Signature)
My Commission Expires: July 13, 1999
My County of Residence: Alameda
[Notary Public Seal omitted]
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ADDENDUM
THIS ADDENDUM is made this 3rd day of June, 1996, by and between DUKE
REALTY LIMITED PARTNERSHIP, an Indiana limited partnership ("Landlord"), and
VANSTAR CORPORATION, a Delaware corporation ("Tenant"), and is incorporated into
the above and foregoing Lease Agreement by and between Landlord and Tenant of
even date herewith.
1. The Lease is amended by adding the following additional sections:
SECTION 17.14. EARLY OCCUPANCY. Landlord will use good faith efforts to
allow Tenant to enter the manufacturing area of the Leased Premises on or
about December 4, 1996 for fixturing purposes. Tenant agrees to coordinate
its fixturing work with the work of Landlord such that Tenant's work does
not interfere with or delay Landlord's work; provided, however, that
neither Landlord nor any of Landlord's affiliates shall have any
responsibility or liability whatsoever for any injury (including death) to
persons or loss or damage to any of Tenant's leasehold improvements,
fixtures, equipment or any other materials installed or left in the Leased
Premises prior to the Commencement Date. All of the terms and conditions of
this Lease will become effective upon Tenant taking such early occupancy of
the Leased Premises, except for the term of this Lease and the payment of
Minimum Annual Rent and Additional Rent, which will commence on the
Commencement Date.
SECTION 17.15. OPTION TO EXTEND.
A. GRANT AND EXERCISE OF OPTION. Provided that (i) Tenant has not been in
default hereunder at any time during the Term of this Lease (the "original
Term"), (ii) the creditworthiness of Tenant is then acceptable to Landlord,
(iii) Tenant originally named herein remains in possession of and is
continuously operating the entire Leased Premises, and (iv) the current use
of the Leased Premises is acceptable to Landlord, Tenant shall have one (1)
option to extend the Original Term for one (1) additional period of five
(5) years (the "Extension Term"). The Extension Term shall be upon the same
terms and conditions contained in the Lease for the Original Term except
(i) Tenant shall not have any further option to extend and (ii) the Minimum
Annual Rent shall be adjusted as set forth herein ("Rent Adjustment").
Tenant shall exercise such option by delivering to Landlord no later than
nine (9) months prior to the expiration of the Original Term, written
notice of Tenant's desire to extend the Original Term. Within forty-five
(45) days after Landlord's receipt of such notice from Tenant, Landlord
shall provide Tenant with the Minimum Annual Rent to be charged to Tenant
during the Extension Term. Tenant shall notify Landlord of its intention to
either exercise or not exercise its Option to Extend at least six (6)
months prior to the expiration of the Original Lease. Tenant's failure to
properly exercise such option shall waive it. If Tenant properly exercises
its option to extend, Landlord and Tenant shall execute an amendment to
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the Lease reflecting the terms and conditions of the Extension Term.
B. MARKET RENT ADJUSTMENT. The Minimum Annual Rent for the Extension Term
shall be an amount equal to the Minimum Annual Rent then being charged by
Landlord to prospective new tenants for space of comparable size and
quality and with similar or equivalent improvements as are found in the
Park; provided, however, that in no event shall the Minimum Annual Rent
during the Extension Term be less than the highest Minimum Annual Rent
payable during the Original Term. The Minimum Monthly Rent shall be an
amount equal to one-twelfth (1/12) of the Minimum Annual Rent for the
Extension Term and shall be paid at the same time and in the same manner as
provided in the Lease.
SECTION 17.16. RIGHT OF TENANT REGARDING ADJACENT LAND. Provided that
(i) Tenant has not been in default hereunder at any time during the Lease
Term, (ii) the creditworthiness of Tenant is then acceptable to Landlord,
(iii) Tenant originally named herein remains in possession of and has been
continuously operating in the entire Leased Premises throughout the Lease
Term, and (iv) the current use of the Leased Premises is acceptable to
Landlord, Landlord agrees that before Landlord develops and/or leases any
portion of the adjacent approximately 9.1 acres to the north of the
Building ("Adjacent Land"), Landlord shall give notice of any such proposal
to Tenant and enter into good faith discussions with Tenant regarding any
commercially reasonable use of the Adjacent Land for expansion by Tenant.
If Landlord and Tenant fail to reach an agreement regarding Tenant's use of
the Adjacent Land within ten (10) business days from such notice, Landlord
shall be entitled to lease or develop such Adjacent Land pursuant to
Landlord's plans.
SECTION 17.17. CONTINGENCY. This Lease is contingent upon Landlord
closing on Tenant's buildings located at 6060 Guion Road, Indianapolis,
Indiana 46254. If Landlord fails to close on Tenant's buildings, the
parties shall be relieved of all obligations hereunder and neither party
shall have any further liability to the other for any matters relating to
this Lease.
IN WITNESS WHEREOF, the parties hereto have executed the Addendum as of the
day and year first above written.
LANDLORD:
DUKE REALTY LIMITED PARTNERSHIP,
an Indiana limited partnership
By: Duke Realty Investments,
Inc., its General Partner
By: /s/ William E. Linville, III
----------------------------
William E. Linville, III
Vice President
Indiana Industrial Group
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<PAGE>
TENANT:
VANSTAR CORPORATION, a Delaware
corporation
By: /s/ Robert C. Kuntzendorf
-------------------------------
Printed: Robert C. Kuntzendorf
--------------------------
Title: Senior VP
----------------------------
STATE OF California )
) SS:
COUNTY OF Alameda )
Before me, a Notary Public in and for said County and State, personally
appeared Robert C. Kuntzendorf, by me known and by me known to be the Sr. Vice
President of Vanstar Corporation, a Delaware corporation, who acknowledged the
execution of the above and foregoing Lease Agreement for and on behalf of said
corporation.
WITNESS my hand and Notarial Seal this 3rd day of June, 1996,
/s/ Constance F. McTaggart
--------------------------
Notary Public
Constance F. McTaggart
--------------------------
(Printed Signature)
My Commission Expires: July 13, 1999
My County of Residence: Alameda
[Notary Public Seal omitted]
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<PAGE>
Exhibit 10.15
SECOND LEASE AMENDMENT
THIS SECOND LEASE AMENDMENT (the "Amendment") is executed this 30th day
of May, 1996, by and between DUGAN REALTY, L.L.C., an Indiana limited
liability company ("Landlord"), and VANSTAR CORPORATION, a Delaware
corporation ("Tenant").
W I T N E S S E T H :
WHEREAS, WRC Properties, Inc., as predecessor in interest to Landlord, and
Computerland Corporation, as predecessor in interest to Tenant, entered into a
certain Lease dated December 9, 1993, as amended July 18, 1995 (collectively,
the "Lease"), whereby Tenant leased from Landlord certain premises consisting of
128,800 square feet of space (the "Original Premises") located in Building 62 of
Park 100 Business Park commonly known as 5012-5032 W. 79th Street, Indianapolis,
Indiana 46268; and
WHEREAS, Landlord and Tenant desire to reduce the Original Premises by
64,400 square feet (the "Reduced Space"). Commencing March 1, 1997, the "Leased
Premises" (as used in the Lease) shall refer to the Reduced Space; and
WHEREAS, Landlord and Tenant desire to extend the Lease Term for a period
of ten (10) years; and
WHEREAS, Landlord and Tenant desire to amend certain provisions of the
Lease to reflect such reduction and extension;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants herein contained and each act performed hereunder by the parties,
Landlord and Tenant hereby enter into this Amendment.
1. AMENDMENT OF ARTICLE 1. THE LEASE PREMISES. Commencing March 1, 1997,
Paragraph 1 of Article 1 of the Lease is hereby amended to reflect the Leased
Premises address as 5012 West 79th Street, Indianapolis, Indiana 46268, and the
square footage in the Leased Premises is hereby amended to reference
approximately 64,400 square feet in lieu of approximately 128,800 square feet.
Paragraph 1 of Article 1 is further amended to replace the EXHIBIT A to the
Lease with the AMENDED EXHIBIT A attached hereto and incorporated herein by
reference.
2. AMENDMENT OF ARTICLE 2. TERM. The term of the Lease is hereby extended
through February 28, 2007.
3. AMENDMENT OF ARTICLE 3. MINIMUM RENT. Commencing March 1, 1997,
Article 3 of the Lease is hereby amended to provide for the following monthly
and annual rental schedule:
March 1, 1997 - February 28, 2002 $282,716.04 per year or
$ 23,559.67 per month
March 1, 2002 - February 28, 2007 $310,407.96 per year or
$ 25,867.33 per month
4. AMENDMENT OF ARTICLE 4. ADDITIONAL RENT. Commencing March 1, 1997,
Article 4 of the Lease is hereby amended to reflect the percentage the Leased
Premises bears to the total square footage of the Building as "(i.e. 50%)" in
lieu of "(i.e. 100%)".
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<PAGE>
5. AMENDMENT OF ARTICLE 21. Article 21 of the Lease is hereby amended to
reflect the following notice and payment addresses:
Landlord: Dugan Realty, L.L.C.
c/o Duke Realty Services Limited Partnership
8888 Keystone Crossing, Suite 1200
Indianapolis, IN 46240
Payments to: Dugan Realty, L.L.C.
c/o Duke Realty Services Limited Partnership
P.O. Box 66548
Indianapolis, IN 46266
Tenant: Vanstar Corporation
ATTN: Director of Real Estate
5964 W. Las Positas Blvd.
P.O. Box 9012
Pleasanton, CA 94566
6. AMENDMENT OF THE DECEMBER 9, 1993 ADDENDUM AND THE FIRST LEASE
AMENDMENT. Sections 1, 2 and 3 of the December 9, 1993 Addendum and Section 3 of
the First Lease Amendment to the Lease are hereby deleted in their entirety and
replaced with the following:
SECTION 36. TENANT FINISH IMPROVEMENTS. Tenant has personally
inspected the Leased Premises and accepts the same "as is" without
representation or warranty by Landlord of any kind and with the
understanding that Landlord shall have no responsibility with respect
thereto except to construct in a good and workmanlike manner the
improvements designated as Landlord's obligations in the attached
EXHIBIT B. Such improvements shall be in accordance with and at the
expense of the party indicated on EXHIBIT B.
SECTION 37. OPTION TO EXTEND.
A. GRANT AND EXERCISE OF OPTION. Provided that (i) Tenant has not
been in default hereunder at any time during the Term of this Lease
(the "Original Term"), (ii) the creditworthiness of Tenant is then
acceptable to Landlord, (iii) Tenant originally named herein remains
in possession of and is continuously operating the entire Leased
Premises and (iv) the current use of the Leased Premises is acceptable
to Landlord, Tenant shall have one (1) option to extent the Term for
one (i) additional period of five (5) years (the "Extension Term").
The Extension Term shall be upon the same terms and conditions
contained in the Lease, as amended by this Second Lease Amendment,
except (I) Tenant shall not have any further option to extend and (ii)
the Minimum Annual Rent shall be adjusted as set forth herein ("Rent
Adjustment"). Tenant shall exercise such option by delivering to
Landlord no later than August 31, 2006, written notice of Tenant's
desire to extend the Term. Tenant's failure to properly exercise such
option shall waive it. If Tenant properly exercises its option to
extend, Landlord shall notify Tenant of the Rent Adjustment no later
than ninety (90) days prior to the commencement of the Extension Term.
Tenant shall be deemed to have accepted the Rent Adjustment if it
fails to deliver to Landlord a written objection thereto within ten
(10) business days after receipt thereof. If Tenant properly exercises
its option to extend, Landlord and Tenant shall execute an amendment
to the Lease (or, at Landlord's option, a new lease on the form then
in use
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<PAGE>
for the Building) reflecting the terms and conditions of the Extension
Term.
B. MARKET RENT ADJUSTMENT. The Minimum Annual Rent for the
Extension Term shall be an amount equal to the Minimum Annual Rent
then being quoted by Landlord to prospective new tenants of the
Building for space of comparable size and quality and with similar or
equivalent improvements as are found in the Building, and if none,
then in similar buildings in the Park; provided, however, that in no
event shall the Minimum Annual Rent during the Extension Term be less
than the highest Minimum Annual Rent payable during the Original Term.
The Minimum Monthly Rent shall be an amount equal to one-twelfth
(1/12) of the Minimum Annual Rent for the Extension Term and shall be
paid at the same time and in the same manner as provided in the Lease.
7. The Lease is hereby amended to add the following:
SECTION 38. RIGHT OF FIRST REFUSAL. Provided that (i) Tenant has not
been in default hereunder at any time during the Lease Term, (ii) the
creditworthiness of Tenant is then acceptable to Landlord, (iii)
Tenant originally named herein remains in possession of and has been
continuously operating in the entire Leased Premises throughout the
Lease Term, and (iv) the current use of the Leased Premises is
acceptable to Landlord, and subject to any rights of other tenants to
the Refusal Space, Tenant shall have the right of first refusal
("Refusal Option") to lease the 64,400 square feet adjacent to
Tenant's Leased Premises in the Building, as crosshatched on the
attached EXHIBIT C ("Refusal Space"), as such space becomes available
for leasing during the Lease Term. The term for the Refusal Space
shall be coterminous with the Lease Term, provided, however, that the
minimum term for the Refusal Space shall be three (3) years and the
Lease Term shall be extended, if necessary, to be coterminous with the
term for the Refusal Space. The Refusal Space shall be offered to
Tenant at the rental rate and upon such other terms and conditions,
excluding free rent and other concessions, as are then being offered
by Landlord to a specific third party prospective tenant for such
space, but in no event shall such rental rate be less than the then
current rental rate under this Lease. In the event that the Refusal
Space is not leased to the initial third party prospective tenant,
then this Refusal Option shall remain in effect in the event of an
offer to any other specific third party prospective tenant and the
Refusal Space shall again be offered to Tenant in accordance herewith.
Upon notification in writing by Landlord that the Refusal Space is
available, Tenant shall have five (5) business days in which to notify
Landlord in writing of its election to lease the Refusal Space at such
rental rates described above, in which event this Lease shall be
amended to incorporate such Refusal Space. In the event Tenant
declines or fails to elect to lease the Refusal Space, then this
Refusal Option shall automatically terminate and shall thereafter be
null and void as to such space. It is understood and agreed that this
Refusal Option shall not be construed to prevent any tenant in the
Building from extending or renewing its lease.
8. TENANTS REPRESENTATIONS AND WARRANTIES. The undersigned represents
and warrants to Landlord that (i) Tenant is duly
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<PAGE>
organized, validly existing and in good standing in accordance with the laws of
the state under which it was organized; (ii) all action necessary to authorize
the execution of this Amendment has been taken by Tenant; and (iii) the
individual executing and delivering this Amendment on behalf of Tenant has been
authorized to do so, and such execution and delivery shall bind Tenant. Tenant,
at Landlord's request, shall provide Landlord with evidence of such authority.
9. EXAMINATION OF AMENDMENT. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation or option,
and it is not effective until execution by and delivery to both Landlord and
Tenant.
10. DEFINITIONS. Except as otherwise provided herein, the capitalized
terms used in this Amendment shall have the definitions set forth in the Lease.
11. INCORPORATION. This Amendment shall be incorporated into and made a
part of the Lease, and all provisions of the Lease not expressly modified or
amended hereby shall remain in full force and effect.
12. PERSONAL PROPERTY. Upon termination of the lease, Tenant shall remove
all personal property set forth in Exhibit D, attached hereto and incorporated
herein.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
on the day and year first written above.
LANDLORD:
DUGAN REALTY, L.L.C., an Indiana
limited liability company
By: DUKE REALTY LIMITED PARTNERSHIP,
an Indiana limited partnership, Its Member
By: DUKE REALTY INVESTMENTS, INC.,
an Indiana corporation, Its General Partner
By: /s/ SIGNATURE ON FILE
----------------------------------------
William E. Linville, III
Vice President
Indiana Industrial Group
TENANT:
VANSTAR CORPORATION, a Delaware Corporation
By: ROBERT C. KUNTZENDORF
------------------------------------
Printed: ROBERT C. KUNTZENDORF
-------------------------------
Title: SENIOR VP
---------------------------------
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<PAGE>
STATE OF CALIFORNIA )
)
COUNTY OF ALAMEDA )SS:
Before me, a Notary Public in and for said County and State personally
appeared Robert C. Kuntzendorf, by me known and by me known to be the
Sr. Vice President of Vanstar Corporation, a Delaware corporation, who
acknowledged the execution of the foregoing "Second Lease Amendment" on behalf
of said corporation.
WITNESS my hand and Notarial Seal this 3rd of June, 1996.
CONSTANCE F. McTAGGART
-----------------------------------
Notary Public
CONSTANCE F. McTAGGART
-----------------------------------
(Printed Signature)
My Commission Expires: July 13, 1999
----------------------
My County of Residence: Alameda
---------------------
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<PAGE>
Exhibit 10.16
LEASE AGREEMENT
THIS LEASE is executed this 3rd day of June, 1996, by and between
DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership ("Landlord"),
and VANSTAR CORPORATION, a Delaware corporation ("Tenant").
WITNESSETH:
ARTICLE 1 - LEASE OF PREMISES
SECTION 1.01. BASIC LEASE PROVISIONS AND DEFINITIONS.
A. Leased Premises Address: Three (3) buildings located at 6060 Guion Road,
Indianapolis, Indiana 46254 (the "Buildings"):
B. Rentable Area: approximately 168,624 square feet;
Landlord shall use commercially reasonable standards, consistently applied,
in determining the Rentable Area and the rentable area of the Buildings.
Landlord's determination of Rentable Area made in good faith shall
conclusively be deemed correct for all purposes hereunder, including
without limitation the calculation of Tenant's Proportionate Share and
Tenant's Minimum Annual Rent.
C. Tenant's Proportionate Share: 100%;
D. Minimum Annual Rent:
Commencement Date*- March 31, 1997 $387,835.20 (ten months)
April 1, 1997 - April 30, 1997 $100,667.00 (one month)
E. Monthly Rental Installments:
Commencement Date*- March 31, 1997 $32,319.60 (per month)
April 1, 1997 - April 30, 1997 $100,667.00 (one month)
F. Landlord's Share of Expenses: $.00 times the rentable area of the
Buildings;
G. Term: Approximately ten (10) months;
H. *Commencement Date: (See Section 2.01 hereof);
I. Security Deposit: $32,319.60;
J. Guarantor(s): n/a;
K. Broker(s): n/a;
L. Permitted Use: Such uses as are in compliance with all laws, rules,
regulations, covenants, zoning and any other restrictions existing at any
time during the Lease Term;
M. Address for notices:
Landlord: Duke Realty Limited Partnership
8888 Keystone Crossing, Suite 1200
Indianapolis, IN 46240
<PAGE>
Tenant: Vanstar Corporation
Attn: Director of Real Estate
5964 West Las Positas Blvd.
P.O. Box 9012
Pleasanton, California 94566-9012
Address for rental and other payments:
Duke Realty Limited Partnership
P.O. Box 66259
Indianapolis, IN 46266
SECTION 1.02. LEASED PREMISES. Landlord hereby leases to Tenant and
Tenant leases from Landlord, subject to all of the terms and conditions set
forth herein, the Buildings described in the Basic Lease Provisions and outlined
on EXHIBIT A attached hereto (the "Leased Premises"). Landlord also grants to
Tenant the right to use the parking areas adjoining the Buildings depicted on
EXHIBIT A which shall be for the exclusive use of the tenants) of the Buildings.
ARTICLE 2 - TERM AND POSSESSION
SECTION 2.01. TERM. The term of this Lease ("Lease Term") shall be the
period of time specified in the Basic Lease Provisions and shall commence on the
date that Landlord closes on the purchase of the Buildings from Tenant (the
"Commencement Date"), which the parties anticipate will occur in June 1996.
Tenant hereby acknowledges that Tenant has accepted the Leased Premises for
occupancy and that the condition of the Leased Premises (including any tenant
finish improvements constructed thereon) and the Buildings are satisfactory and
in conformity with the provisions of this Lease in all respects.
SECTION 2.02. CONSTRUCTION OF TENANT IMPROVEMENTS. Tenant has personally
inspected the Leased Premises and accepts the same "as is" without
representation or warranty by Landlord of any kind and with the understanding
that Landlord shall have no responsibility with respect thereto. An "as-built"
drawing of the Leased Premises is attached hereto as EXHIBIT B.
SECTION 2.03. SURRENDER OF THE PREMISES. Upon the expiration or earlier
termination of this Lease, or upon the exercise by Landlord of its right to re-
enter the Leased Premises without terminating this Lease, Tenant shall
immediately surrender the Leased Premises to Landlord, in broomclean condition
and in good order, condition and repair, except for ordinary wear and tear and
damage which Tenant is not obligated to repair. Tenant shall also remove its
personal property, trade fixtures and any of Tenant's alterations designated by
Landlord; promptly repair any damage caused by such removal; and restore the
Leased Premises to the condition existing prior to the installation of the items
so removed. If tenant fails to do so, Landlord may restore the Leased Premises
to such condition at Tenant's expense, and Landlord may cause all of said
property to be removed at Tenant's expense, and Tenant hereby agrees to pay all
the costs and expenses thereby reasonably incurred. All property of Tenant
which is not removed within ten (10) days following Landlord's written demand
therefor shall be conclusively deemed to have been abandoned by
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<PAGE>
Tenant, and Landlord shall be entitled to dispose of such property without
thereby incurring any liability to Tenant. The provisions of this section shall
survive the expiration or other termination of this Lease.
SECTION 2.04. HOLDING OVER. If Tenant retains possession of the Leased
Premises after the expiration or earlier termination of this Lease, Tenant shall
become a tenant from month to month at 125% of the Monthly Rental Installment in
effect at the end of the Lease Term (plus Additional Rent as provided in
ARTICLE 3 hereof), and otherwise upon the terms, covenants and conditions herein
specified, so far as applicable. Acceptance by Landlord of rent after such
expiration or earlier termination shall not result in a renewal of this Lease,
and Tenant shall vacate and surrender the Leased Premises to Landlord upon
Tenant being given thirty (30) days prior written notice from Landlord to
vacate.
ARTICLE 3 - RENT
SECTION 3.01. BASE RENT. Tenant shall pay to Landlord as Minimum Annual
Rent for the Leased Premises the sum specified in the Basic Lease Provisions,
payable in equal consecutive Monthly Rental Installments, in advance, without
deduction or offset, beginning on the Commencement Date and on or before the
first day of each and every calendar month thereafter during the Lease Term.
The Monthly Rental Installment for partial calendar months shall be prorated
based on the number of days during the month this Lease was in effect in
relation to the total number of days in such month.
SECTION 3.02. ADDITIONAL RENT. In addition to the Minimum Annual Rent
specified in this Lease, Tenant agrees to pay to Landlord for each calendar year
during the Lease Term, as "Additional Rent," (i) Tenant's Proportionate Share
(as described in the Basic Lease Provisions) of all costs, charges and expenses
paid or incurred by Landlord during the Lease Term for Operating Expenses for
the Buildings and appurtenant common areas, and (ii) Tenant's Proportionate
Share of all Real Estate Taxes for the Buildings and appurtenant common areas
which are payable with respect to the time period during which Tenant leases the
Leased Premises pursuant to this Lease. For example, assuming the Commencement
Date is July 1, 1996, the first Real Estate Tax bill for which Tenant would be
responsible would be the tax bill for the second half of calendar year 1997
which is payable on November 10, 1997. Further, Tenant acknowledges that this
method of payment of Real Estate Taxes in arrears will require Tenant to be
responsible to Landlord for its proportionate share of Real Estate Taxes
payable subsequent to the expiration or other termination of this Lease, and
therefore agrees that Tenant's obligations with respect to the payment of Real
Estate Taxes shall survive the expiration or other termination of this Lease.
"Operating Expenses" shall mean all of Landlord's expenses for operation,
repair, replacement and maintenance as necessary to keep the Buildings and
appurtenant common areas in good order, condition and repair (including all
additional direct
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<PAGE>
costs and expenses of operation and maintenance of the Buildings which Landlord
reasonably determines it would have paid or incurred during such year if the
Buildings had been fully occupied), including, but not limited to, management
fees; utilities; stormwater discharge fees; license, permit, inspection and
other fees; environmental and pollution testing and consultation fees related
thereto; fees and assessments imposed by any covenants or owners' association;
tools and supplies; security services; insurance premiums; and maintenance and
repair of the driveways and parking areas (including snow removal), exterior
lighting facilities, landscaped areas, walkways, curbs, drainage strips, sewer
lines, exterior walls, foundation, structural frame, roof and gutters.
Notwithstanding the foregoing, Operating Expenses shall not include costs of
capital improvements unless such capital improvements are required by any
governmental authority, law or regulation, in which event such capital
expenditure shall be amortized pursuant to generally accepted accounting
principles, and only the amortized portion thereof shall be included in
Operating Expenses each year. To the extent that any of the foregoing Operating
Expenses are incurred with respect to work performed or services provided by an
affiliate of Landlord, such Operating Expenses shall not exceed the amounts that
would have been paid to unaffiliated parties for work/services of similar
quantity and quality.
"Real Estate Taxes" shall include any form of real estate tax or
assessment, general, special, ordinary or extraordinary, and any license fee,
commercial rental tax, improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) imposed upon the Leased Premises
(or against Landlord's business of leasing the Buildings) by any authority
having the direct or indirect power to tax, together with costs and expenses of
contesting the validity or about of Real Estate Taxes. If the property is not
separately assessed, then Tenant's liability shall be an equitable proportion of
the real estate taxes for all of the land and improvements included within the
tax parcel assessed. Landlord's reasonable determination thereof, in good
faith, shall be conclusive. Notwithstanding the foregoing, Tenant has the right
to appeal any Real Estate Tax assessment involving the Buildings, the Leased
Premises or associated land or common areas which Tenant may be obligated to
pay, and Landlord agrees to cooperate in good faith with Tenant in this regard.
Tenant shall pay, prior to delinquency, all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant contained in the Leases Premises or elsewhere. Tenant shall
cause such trade fixtures, furniture, equipment and all other personal property
to be assessed and billed separately from the Leased Premises.
SECTION 3.03. PAYMENT OF ADDITIONAL RENT. Landlord shall be entitled to
estimate the total amount of Additional Rent to be paid by Tenant during each
calendar year of the Lease Term, whereupon commencing on the Commencement Date,
Tenant shall pay to Landlord each month, at the same time the Monthly Rental
Installment is due, an amount equal to one-twelfth (1/12) of the estimated
Additional Rent for such year. Within a reasonable time after the end of each
calendar year, Landlord shall submit to Tenant a statement of the actual amount
of such Additional Rent and within thirty (30) days after receipt of such
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statement, Tenant shall pay any deficiency between the actual amount owed and
the estimates paid during such calendar year, or in the event of overpayment,
Landlord shall credit the amount of such overpayment toward the next
installments of Minimum Rent. To the extent that the Lease Term includes any
partial calendar years, the Additional Rent included in this section shall be
prorated based upon the number of days in such calendar year included within the
Lease Term divided by 360. Notwithstanding the foregoing provisions of this
Section 3.03, so long as Tenant is not in default under this Lease, Tenant shall
not be required to pay the portion of the Additional Rent attributable to Real
Estate Taxes on a monthly basis; rather, Tenant shall simply be required to pay
the Real Estate Taxes prior to delinquency and shall furnish Landlord with
evidence of such payment at least ten (10) days prior to the date such payment
becomes delinquent. In this regard, Landlord agrees to timely forward to Tenant
for payment all bills received by Landlord with respect to Real Estate Taxes.
SECTION 3.04. LATE CHARGES. Tenant acknowledges that Landlord shall incur
certain additional unanticipated costs and expenses, including administrative
costs and attorney's fees, if Tenant fails to timely pay any payment required
hereunder. Therefore, as compensation for such additional expenses, and in
addition to the other remedies available to Landlord hereunder, if any payment
of Minimum Rent or any other sum or charge required to be paid by Tenant to
Landlord hereunder shall become overdue for a period of seven (7) days. After
the same is due and payable such unpaid amount shall bear interest from the due
date thereof to the date of payment at the rate of fifteen percent (15%) per
annum. Notwithstanding the foregoing, Landlord will provide Tenant with a
written courtesy notice of such late payment and Tenant shall have an additional
five (5) days to cure such late payment before Landlord imposes the late fee
interest; provided, however, that Landlord shall not be required to give such
courtesy notice more than one (1) time during any twelve (12) month period.
ARTICLE IV - SECURITY DEPOSIT
Tenant, upon execution of this Lease, shall deposit with Landlord the
Security Deposit as specified in the Basic Lease Provisions as security for the
full and faithful performance by Tenant of all of the terms, conditions and
covenants contained in this Lease on the part of Tenant to be performed,
including but not limited to the payment of the rent. In the event of a default
by Tenant of any term, condition or covenant herein contained, Landlord may
apply all or any part of such security deposit to curing all or any part of such
default; and Tenant agrees to promptly, upon demand, deposit such additional sum
with Landlord as may be required to maintain the full amount of the security
deposit. All sums held by Landlord pursuant to this section shall be without
interest. At the end of the Lease Term, provided that there is then no uncured
default, Landlord shall return the security deposit to Tenant.
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ARTICLE 5 - USE
SECTION 5.01. USE OF LEASED PREMISES. The Leased Premises are to be used
by Tenant solely as provided in the Basic Lease Provisions, and for no other
purposes without the prior written consent of Landlord.
SECTION 5.02. COVENANTS OF TENANT REGARDING USE. In connection with its
use of the Leased Premises, Tenant agrees to do the following:
(a) Tenant shall (i) use and maintain the Leased Premises and conduct its
business thereon in a safe, careful, reputable and lawful manner, (ii) comply
with all laws, rules, regulations, orders, ordinances, directions and
requirements of any governmental authority or agency, now in force or which may
hereafter be in force, including without limitation those which shall impose
upon Landlord or Tenant any duty with respect to or triggered by a change in the
use or occupation of, or any improvement or alteration to, the Leased Premises,
and (iii) comply with and obey all reasonable directions of the Landlord,
including any Rules and Regulations that may be adopted by Landlord from time to
time. Landlord represents to Tenant that no such Rules and Regulations
currently exist with respect to the Leased Premises.
(b) Tenant shall not (i) use the Leased Premises for any unlawful purpose
or act, (ii) commit or permit any waste or damage to the Leased Premises, (iii)
store any inventory, equipment or any other materials outside the Leased
Premises, or (iv) do or permit anything to be done in or about the Leased
Premises or appurtenant common areas which constitutes a nuisance or which will
in any way obstruct or interfere with the rights of other tenants or occupants
of the Buildings or injure or annoy them. Landlord shall not be responsible to
Tenant for the nonperformance by any other tenant or occupant of the Buildings
of its lease or of any Rules and Regulations.
(c) Tenant shall not overload the floors of the Leased Premises as to
cause damage to the floor. All damage to the floor structure or foundation of
the Buildings due to improper positioning or storage of items or materials
shall be repaired by Landlord at the sole expense of Tenant, who shall
reimburse Landlord immediately therefor upon demand.
(d) Tenant shall not use the Leased Premises, or allow the Leased Premises
to be used, for any purpose or in any manner which would, in Landlord's opinion,
invalidate any policy of insurance now or hereafter carried on the Buildings or
increase the rate of premiums payable on any such insurance policy. Should
Tenant fail to comply with this covenant, Landlord may, at its option, require
Tenant to stop engaging in such activity or to reimburse Landlord on
the Leased Premises and attributable to the use being made of the Leased
Premises by Tenant.
(e) Tenant may, at its own expense, erect a sign concerning its business
which shall be in keeping with the decor and other signs on the Buildings,
provided that such sign is first approved by Landlord in writing. Landlord's
approval, if given, may be conditioned upon such criteria as Landlord deems
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appropriate to maintain the area in a neat and attractive manner. Tenant agrees
to maintain any sign in good state of repair, and upon expiration of the Lease
Term, Tenant shall promptly remove the sign and repair any resulting damage to
the Leased Premises or Buildings.
SECTION 5.03. LANDLORD'S RIGHTS REGARDING USE. In addition to the rights
specified elsewhere in this Lease, Landlord shall have the following rights
regarding the use of the Leased Premises or the appurtenant common areas by
Tenant, its employees, agents, customers and invitees, each of which may be
exercised without notice or liability to Tenant:
(a) Landlord may install such signs, advertisements, notices or tenant
identification information as it shall deem necessary or proper.
(b) Landlord shall not have the right at any time to change or otherwise
alter the appurtenant common areas which are part of the land depicted on
Exhibit A hereto unless and until Landlord has obtained Tenant's prior written
consent to any such alteration, which consent will not be unreasonably withheld,
conditioned or delayed.
(c) Landlord or Landlord's agent shall be permitted to inspect or examine
the Leased Premises at any reasonable time, and Landlord shall have the right to
make any repairs to the Leased Premises which are necessary for its
preservation; provided, however, that any repairs made by Landlord shall be at
Tenant's expense, except as provided in SECTION 7.02 hereof. If Tenant is not
present to open and permit such entry into the Leased Premises at any time when
such entry is necessary or permitted hereunder, Landlord and its employees and
agents may enter the Leased Premises by means of a master or pass key or
otherwise. Landlord shall incur no liability to Tenant for such entry, nor
shall such entry constitute an eviction of Tenant or a termination of this
Lease, or entitle Tenant to any abatement of rent therefor.
ARTICLE 6 - UTILITIES AND SERVICES
Tenant shall obtain in its own name and shall pay directly to the
appropriate supplier the cost of all utilities and services serving the Leased
Premises, including but not limited to: natural gas, heat, light, electrical
power, telephone, janitorial service, refuse disposal and other utilities and
services. However, if any services or utilities are jointly metered with other
property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the costs of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement. Landlord shall not be liable in damages or otherwise for any
failure or interruption of any utility service or other service furnished to the
Leased Premises; and no such failure or interruption shall entitle Tenant to
terminate this Lease or withhold sums due hereunder. Notwithstanding the
forgoing sentence, in the event that any failure or interruption of a utility
service continues for a period in excess of forty-eight (48) hours and such
failure or interruption resulted directly from the negligence of Landlord,
Tenant shall be
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entitled to abate rent to the extent that the Leased Premises cannot reasonably
be used by Tenant for Tenant's intended purposes. In any event, Landlord agrees
to use reasonable good faith efforts to cause the failed or interrupted utility
service to be restored as soon as possible.
ARTICLE 7 - MAINTENANCE AND REPAIRS
SECTION 7.01. TENANT'S RESPONSIBILITY. During the term of this Lease,
Tenant shall, at its own cost and expense, maintain in good condition and repair
the interior of the Leased Premises, including but not limited to the interior
electrical systems, heating and air conditioning systems, plate glass, floors,
windows and doors (but not window and door frames), sprinkler and interior
plumbing systems. Tenant, at its expense, shall obtain a preventative
maintenance contract on the heating, ventilating and air-conditioning systems
which shall be subject to Landlord's reasonable approval. Tenant shall provide
Landlord with a copy of the preventative maintenance contract no later than
ninety (90) days after the Commencement Date. The preventative maintenance
contract shall provide for the inspection and maintenance of the heating,
ventilating and air conditioning system on not less than a semi-annual basis.
Landlord agrees to make available to Tenant to the extent that Landlord is able
to do so any and all manufacturers' warranties received by Landlord with respect
to the Buildings.
SECTION 7.02. LANDLORD'S RESPONSIBILITY. During the Lease Term, Landlord
shall maintain in good condition and repair the roof, exterior walls, foundation
and structural frame of the Buildings, and the parking and landscaped areas, the
cost of which (except as provided otherwise in Section 3.02 of the Lease) shall
be included in Operating Expenses; provided, however, that to the extent that
any of the foregoing items require repair because of the negligence, misuse or
default of Tenant, its employees, agents, customers or invitees, Landlord shall
make such repairs at Tenant's expense.
SECTION 7.03. ALTERATIONS. Tenant shall not permit structural or non-
structural alterations or additions in or to the Leased Premises unless and
until the plans have been approved by Landlord in writing, which approval shall
not be unreasonably withheld, conditioned or delayed. As a condition of such
approval, Landlord may require Tenant to remove the alterations and restore the
Leased Premises upon termination of this Lease; otherwise, all such alterations
or improvements, except moveable office furniture and equipment and trade
fixtures (including Tenant's distribution equipment which is attached to the
floor of the Leased Premises), shall at Landlord's option become a part of the
realty and the property of Landlord, and shall not be removed by Tenant. If
Landlord consents to Tenant's performance of alterations or additions to the
Leased Premises, Tenant shall ensure that all alterations and improvements which
are made or necessitated thereby shall be made in accordance with all applicable
laws, regulations and building codes, in a good and workmanlike manner and in a
quality equal to or better than the original construction of the Buildings.
Landlord's approval of the plans, specifications and working drawings for
Tenant's alterations shall create no responsibility or liability on the part of
Landlord for their completeness, design sufficiency, or compliance with all
laws, rules and regulations of governmental agencies or authorities.
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Tenant shall indemnify and save harmless Landlord from all costs, loss or
expense in connection with any construction or installation. No person shall be
entitled to any lien directly or indirectly derived through or under Tenant or
through or by virtue of any act or omission of Tenant upon the Leased Premises
for any improvements or fixtures made thereon or installed therein or for or on
account of any labor or material furnished to the Leased Premises or for or on
account of any matter or thing whatsoever; and nothing in this Lease contained
shall be construed to constitute a consent by Landlord to the creation of any
lien. If any lien is filed against the Leased Premises for work claimed to have
been done for, or material claimed to have been furnished to, Tenant, Tenant
shall cause such lien to be discharged of record within thirty (30) days after
filing by bonding or in any other lawful manner. Tenant shall indemnify and
save harmless Landlord from all costs, losses, expenses, and attorneys' fees in
connection with any such lien.
ARTICLE 8 - CASUALTY
SECTION 8.01. CASUALTY. In the event of total or partial destruction of
the Buildings or the Leased Premises by fire or other casualty, Landlord agrees
to promptly restore and repair the Leased Premises at Landlord's expense;
provided, however, that as to the tenant finish improvements Landlord's
obligation hereunder shall be limited to the reconstruction of such of the
tenant finish improvements as were originally required to be made by Landlord,
if any. Any insurance proceeds not used by Landlord in restoring or repairing
the Leased Premises shall be the sole property of Landlord. Rent shall
proportionately abate during the time that the Leased Premises or part thereof
are unusable because of any such damage thereto. Notwithstanding the foregoing,
if the Leased Premises are (i) so destroyed that they cannot be repaired or
rebuilt within one hundred eighty (180) days from the date of the casualty
event; or (ii) destroyed by a casualty which is not covered by the insurance
required hereunder or, if covered, such insurance proceeds are not released by
any mortgagee entitled thereto or are insufficient to rebuild the Buildings and
the Leased Premises; then, in case of a clause (i) casualty, either Landlord
or Tenant may, or, in the case of a clause (ii) casualty, then Landlord may,
upon thirty (30) days written notice to the other party, terminate and cancel
this Lease; and all further obligations hereunder shall thereupon cease and
terminate. In the event that a casualty occurs, Landlord will use reasonable
good faith efforts to locate substitute temporary space for Tenant during the
time that the Leased Premises are being restored or rebuilt.
SECTION 8.02. FIRE AND EXTENDED COVERAGE INSURANCE. During the term of
this Lease, Landlord shall maintain fire and extended coverage insurance on the
Buildings, but shall not protect Tenant's property on the Leased Premises; and,
notwithstanding the provisions of SECTION 9.01, Landlord shall not be liable for
any damage to Tenant's property, regardless of cause, including the negligence
of Landlord and its employees, agents, and invitees. Tenant hereby expressly
waives any right of recovery against Landlord (or any other tenants of the
Buildings) for damage to any property of Tenant located in or about the Leased
Premises, however caused, including the negligence of Landlord and its
employees, agents, and invitees; and, notwithstanding the provisions of SECTION
9.01 below,
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Landlord hereby expressly waives any rights of recovery against Tenant for
damage to the Leased Premises or the Buildings which is caused by fire or other
casualty of whatever nature (except for any insurance deductible amount paid by
Landlord, up to the maximum amount of $100,000, in the event that the fire or
other casualty event results from the negligence of Tenant or its employees,
agents or contractors). All insurance policies maintained by Landlord or Tenant
as provided in this Lease shall contain an agreement by the insurer waiving the
insurer's right of subrogation against the other party to this Lease and
agreeing not to acquire any rights of recovery which the insured has expressly
waived prior to loss.
ARTICLE 9 - LIABILITY INSURANCE
SECTION 9.01. TENANT'S RESPONSIBILITY. Landlord shall not be liable to
Tenant or to any other person for (i) damage to property or injury or death to
persons due to the condition of the Leased Premises, the Buildings or the
appurtenant common areas, or (ii) the occurrence of any accident in or about the
Leased Premises or the appurtenant common areas, or (iii) any act or neglect of
Tenant or any other tenant or occupant of the Buildings or of any other person,
unless and to the extent such damage, injury or death is directly the result of
Landlord's negligence; and Tenant hereby releases Landlord from any and all
liability for the same. Tenant shall be liable for, and shall indemnify and
defend Landlord and hold it harmless from, any and all liability for (i) any
act or neglect of Tenant and any person coming on the Leased Premises or
appurtenant common areas by the license of Tenant, express or implied, (ii) any
damage to the Leased Premises, and (iii) any loss of or damage or injury to any
person (including death resulting therefrom) or property occurring in, on or
about the Leased Premises, regardless of cause, except in each case for any
loss or damage from fire or other casualty of whatever nature (provided,
however, that Tenant shall be responsible to Landlord for any insurance
deductible amount paid by Landlord, up to the maximum amount of $100,000, in
the event that the fire or other casualty event results from the negligence of
Tenant or its employees, agents or contractors) and except to the extent for
that caused directly by Landlord's negligence. Notwithstanding the foregoing,
Tenant shall bear the risk of any loss or damage to its property as provided
in SECTION 8.02.
SECTION 9.02. TENANT'S INSURANCE. Tenant, in order to insure against the
liabilities specified in this Lease, shall at all times during the term of this
Lease carry, at its own expense, one or more policies of general public
liability and property damage insurance, issued by one or more insurance
companies acceptable to Landlord, with the following minimum coverages:
A. Worker's Compensation: minimum statutory amount.
B. Comprehensive General Liability Insurance, including blanket, contractual
liability, broad form property damage, personal injury, completed
operations, products liability, and fire damage: Not less than $1,000,000
Combined Single Limit for both bodily injury and property damage.
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C. Fire and Extended Coverage, Vandalism and Malicious Mischief, and Sprinkler
Leakage insurance, if applicable, for the full cost of replacement of
Tenant's property.
D. Business interruption insurance.
The insurance policy or policies referenced in B and C above shall protect
Tenant and Landlord as their interests may appear, naming Landlord and
Landlord's managing agent and mortgagee as additional insureds, and shall
provide that they may not be canceled on less than thirty (30) days prior
written notice to Landlord. Tenant shall furnish Landlord with Certificates of
Insurance evidencing all required coverage. Should Tenant fail to carry such
insurance and furnish Landlord with such Certificates of Insurance after a
request to do so, Landlord shall have the right to obtain such insurance and
collect the cost thereof from Tenant as additional rent.
ARTICLE 10 - EMINENT DOMAIN
If all or any substantial part of the Buildings or appurtenant common areas
shall be acquired by the exercise of eminent domain, Landlord may terminate this
Lease by giving written notice to Tenant within fifteen (15) days after
possession thereof is so taken unless Tenant confirms in writing to Landlord
within five (5) days after receipt of such notice from Landlord that the balance
of the Buildings/appurtenant common areas after such taking is sufficient for
Tenant's purposes without offset or abatement. If all or any substantial part
of the Buildings or appurtenant common areas shall be acquired by the exercise
of eminent domain in such a manner that Tenant's use of the Leased Premises
shall become materially, adversely affected and Landlord fails within a
reasonable time to reasonably remedy such adverse impact, Tenant may terminate
this Lease by giving written notice to Landlord within fifteen (15) days after
possession thereof is so taken. Tenant shall have no claim against Landlord on
account of any such acquisition for the value of any unexpired lease term
remaining after possession of the Leased Premises is taken. All damages awarded
shall belong to and be the sole property of Landlord; provided, however, that
Tenant shall be entitled to any award expressly made to Tenant by any
governmental authority for the cost of or the removal of Tenant's stock,
equipment and fixtures and other moving expenses.
ARTICLE 11 - ASSIGNMENT AND SUBLEASE
Tenant shall not assign this Lease or sublet the Leased Premises in whole
or in part without Landlord's prior written consent, which consent shall not be
unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing,
Landlord shall allow Tenant to assign or sublease the Leased Premises to an
entity controlled by, controlling, or under common control with, Tenant,
provided (i) Landlord is given prior notice of Tenant's desire to assign or
sublease to such entity, and (ii) Landlord does not respond to Tenant's notice
within ten (10) days of receipt with its disapproval of the assignment or
sublease. In the event of an assignment or subletting, Tenant shall remain
primarily liable
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to perform all of the covenants and conditions contained in this Lease,
including but not limited to payment of Minimum Rent and Additional Rent as
provided herein. The acceptance of rent from any other person shall not be
deemed to be a waiver of any of the provisions of this Lease or to be a consent
to the assignment of this Lease or the subletting of the Leased Premises.
Without in any way limiting Landlord's right to refuse to consent to any
assignment or subletting of this Lease, Landlord reserves the right to refuse to
give such consent if in Landlord's discretion and opinion (i) the use of the
Leased Premises is or may be in any way adversely affected; or (ii) the business
reputation of the proposed assignee or subtenant is deemed unacceptable.
Landlord further expressly reserves the right to refuse to give its consent to
any subletting if the proposed rent is to be less than the then current rent
for similar premises in the Park. Tenant agrees to reimburse Landlord for
reasonable accounting and attorneys' fees incurred in conjunction with the
processing and documentation of any such requested transfer, assignment,
subletting or any other hypothecation of this Lease or Tenant's interest in and
to the Leased Premises.
ARTICLE 12 - TRANSFERS BY LANDLORD
SECTION 12.01. SALE AND CONVEYANCE OF THE BUILDINGS. Landlord shall have
the right to sell and convey the Buildings at any time during the term of this
Lease, subject only to the rights of Tenant hereunder; and such sale and
conveyance shall operate to release Landlord from liability hereunder after the
date of such conveyance.
SECTION 12.02. SUBORDINATION AND ESTOPPEL CERTIFICATE. Landlord shall
have the right to subordinate this Lease to any mortgage presently existing or
hereafter placed upon the Buildings by so declaring in such mortgage; and the
recording of any such mortgage shall make it prior and superior to this Lease
regardless of the date of execution or recording of either document; provided,
however, such subordination shall be conditioned upon such mortgagee's covenant
and agreement that neither this Lease, nor the estate, or rights created
thereby, nor any rights of Tenant under this Lease will be discharged by any
foreclosure of the mortgage, or deed in lieu of foreclosure, or by any sale of
the Buildings pursuant to any foreclosure sale, subsequent transfer or otherwise
and will remain undisturbed and unaffected thereby and will continue
undisturbed, and upon condition that such mortgagee, or such other purchaser or
transferee shall accept and assume the obligations of Landlord under this Lease,
and Tenant will and hereby does attorn to such mortgagee, or such other
purchaser or transferee, at such sale so that the relationship of landlord and
tenant shall exist between such mortgagor, or such other purchaser or transferee
and Tenant. Such assumption and attornment by each party to be effective and
self-operative without the execution of any further instrument immediately upon
such mortgagee's or such other parties' succeeding to the interest in the Leased
Premises. Within twenty-one (21) days following receipt of a written request
from Landlord, Tenant shall execute and deliver to Landlord, without cost:
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(a) any instrument which Landlord or Tenant may deem necessary or
desirable to confirm the subordination of this Lease and the non-disturbance of
Tenant's rights hereunder; and thereafter within twenty-one (21) days Landlord
shall use good faith efforts to cause mortgagee to execute and deliver to Tenant
such instrument without cost.
(b) an estoppel certificate in such form as Landlord may reasonably
request certifying (i) that this Lease is in full force and effect and
unmodified (or, if modified, stating the nature of such modification), (ii) the
date to which rent has been paid, (iii) that there are not, to Tenant's
knowledge, any uncured defaults (or specifying such defaults if any are
claimed), and (iv) any other matters or state of facts reasonably required
respecting the Lease or Tenant's occupancy of the Leased Premises. Such
estoppel may be relied upon by Landlord and by any purchaser or mortgagee of all
or any part of the Building. Tenant's failure to deliver such statement within
such period shall be conclusive upon Tenant that this Lease is in full force and
effect and unmodified and that there are no uncured defaults in landlord's
performance hereunder.
(c) Notwithstanding the foregoing, if the mortgagee or any other party
shall take title to the Leased Premises through foreclosure or deed in lieu of
foreclosure, or as a result of any foreclosure sale, subsequent transfer or
otherwise, Tenant shall be allowed to continue in possession of the Leased
Premises as provided for in this Lease so long as Tenant shall not be in default
and the acquiring party shall be deemed for all purposes to have assumed
Landlord's obligations under this Lease. Tenant shall, in the event any
proceedings are brought to foreclose any such mortgage, attorn to the purchaser
upon any such foreclosure and recognize such purchaser as the landlord under
this Lease.
SECTION 12.03. LENDER'S RIGHTS. Landlord shall have the right, at any
time and from time to time, to notify Tenant in writing that Landlord has placed
a mortgage on the Building, specifying the identity of the Lender ("Lender").
Following receipt of such notice, Tenant agrees to give such Lender a copy of
any notice of default served by Tenant on Landlord. Tenant further agrees that
if Landlord fails to cure any default as provided in SECTION 13.03 herein,
Lender shall have an additional thirty (30) days within which to cure such
default; provided, however, that if the term, condition, covenant or obligation
to be performed by Landlord is of such nature that the same cannot reasonably be
performed within such thirty-day period, such default shall be deemed to have
been cured if Lender commences such performance within said thirty-day period
and thereafter diligently completes the same.
ARTICLE 13 - DEFAULT AND REMEDY
SECTION 13.01. DEFAULT. The occurrence of any of the following shall be
deemed an "Event of Default":
(a) Tenant shall fail to pay any Monthly Rental Installment or Additional
Rent within five (5) days after the same shall be due and payable, or Tenant
shall fail to pay any
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other amounts due Landlord from Tenant within ten (10) days after the same shall
be due and payable.
(b) Tenant shall fail to perform or observe any term, condition, covenant
or obligation as required under this Lease for a period of thirty (30) day after
notice thereof from Landlord; provided, however, that if the nature of Tenant's
default is such that more than thirty days are reasonably required to cure, then
such default shall be deemed to have been cured if Tenant commences such
performance within said thirty-day period and thereafter diligently completes
the required action within a reasonable time.
(c) Tenant shall vacate or abandon the Leased Premises for any period, or
fail to occupy the Leased Premises or any substantial portion thereof for a
period of thirty (30) days.
(d) All or substantially all of Tenant's assets in the Leased Premises or
Tenant's interest in this Lease are attached or levied under execution (and
Tenant does not discharge the same within sixty (60) days thereafter); a
petition in bankruptcy, insolvency, or for reorganization or arrangement is
filed by or against Tenant (and Tenant fails to secure a stay or discharge
thereof within sixty (60) days thereafter); Tenant shall be insolvent and unable
to pay its debts as they become due; Tenant makes a general assignment for the
benefit of creditors; Tenant takes the benefit of any insolvency action or law;
the appointment of a receiver or trustee in bankruptcy for Tenant or its assets
if such receivership has not been vacated or set aside within thirty (30) days
thereafter; dissolution or other termination of Tenant's corporate charter if
Tenant is a corporation.
SECTION 13.02. REMEDIES. Upon the occurrence of any Event of Default,
Landlord shall have the following rights and remedies, in addition to those
allowed by law, any one or more of which may be exercised without further notice
to or demand upon Tenant:
(a) Landlord may apply the security deposit, if any, or re-enter the
Leased Premises and cure any default of Tenant, and Tenant shall reimburse
Landlord as additional rent for any costs and expenses which Landlord thereby
incurs; and Landlord shall not be liable to Tenant for any loss or damage which
Tenant may sustain by reason of Landlord's action, unless and to the extent
caused directly by Landlord's gross negligence or willful misconduct.
(b) Landlord may terminate this Lease or, without terminating this Lease,
terminate Tenant's right to possession of the Leased Premises as of the date of
such default, and thereafter (i) neither Tenant nor any person claiming under or
through Tenant shall be entitled to possession of the Leased Premises, and
Tenant shall immediately surrender the Leased Premises to Landlord; and (ii)
Landlord may re-enter the Leased Premises and dispossess Tenant and any other
occupants of the Leased Premises by any lawful means and may remove their
effects, without prejudice to any other remedy which Landlord may have. Upon
the termination of this Lease, Landlord may declare the present value (as
reasonably determined by Landlord) of all rent which would have been due under
this Lease for the
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balance of the Lease Term, less the present value of any rental amounts that
Landlord (as reasonably determined by Landlord) would be able to recover during
such unexpired Lease Term, to be immediately due and payable, whereupon Tenant
shall be obligated to pay the same to Landlord, together with all loss or damage
which Landlord may sustain by reason of Tenant's default ("Default Damages"),
which shall include without limitation expenses of preparing the Leased Premises
for re-letting, demolition, repairs, tenant finish improvements, and brokers'
and attorneys' fees, it being expressly understood and agreed that the
liabilities and remedies specified in this subsection (b) shall survive the
termination of this Lease.
(c) Landlord may, without terminating this Lease, reenter the Leased
Premises and re-let all or any part thereof for a term different from that which
would otherwise have constituted the balance of the Lease Term and for rent
and on terms and conditions different from those contained herein, whereupon
Tenant shall be immediately obligated to pay to Landlord as liquidated damages
the difference between the rent provided for herein and that provided for in
any lease covering a subsequent re-letting of the Leased Premises, for the
period which would otherwise have constituted the balance of the Lease Term,
together with all of Landlord's Default Damages.
(d) Landlord may sue for injunctive relief or to recover damages for any
loss resulting from the breach.
(e) In addition to the defaults and remedies described above, the parties
hereto agree that if Tenant defaults in the performance of any (but not
necessarily the same) term or condition of this Lease three (3) or more times
during any twelve (12) month period, regardless of whether such defaults are
ultimately cured, then such conduct shall, at Landlord's option, represent a
separate Event of Default.
SECTION 13.03. LANDLORD'S DEFAULT AND TENANT'S REMEDIES. Landlord shall
be in default if it shall fail to perform or observe any term, condition,
covenant or obligation as required under this Lease for a period of thirty (30)
days after written notice thereof from Tenant to Landlord and to Lender, if any;
provided, however, that if the term, condition, covenant or obligation to be
performed by Landlord is of such nature that the same cannot reasonably be
performed within such thirty-day period and does not materially impact the
conduct of Tenant's business in the Leased Premises, such default shall be
deemed to have been cured if Landlord commences such performance within said
thirty-day period and thereafter diligently undertakes to complete the same.
Notwithstanding the foregoing sentence, the parties hereto agree that if
Landlord defaults in the performance of any material term or condition of this
Lease three (3) or more times during any twelve (12) month period,
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regardless of whether such defaults are ultimately cured, then such conduct
shall, at Tenant's option, represent a separate default by Landlord for which
the foregoing cure period will not apply. Upon the occurrence of any such
default, Tenant may sue for injunctive relief or to recover damages for any loss
resulting from the breach, but Tenant shall not be entitled to terminate this
Lease or withhold, offset or abate any rent due hereunder except against
Additional Rent after obtaining a judgment from a court of competent
jurisdiction.
SECTION 13.04. LIMITATION OF LANDLORD'S LIABILITY. If Landlord shall
fail to perform or observe any term, condition, covenant or obligation
required to be performed or observed by it under this Lease and if Tenant
shall, as a consequence thereof, recover a money judgment against Landlord
(whether compensatory or punitive in nature), Tenant agrees that it shall
look solely to Landlord's right, title and interest in and to the Building
for the collection of such judgment; and Tenant further agrees that no other
assets of Landlord shall be subject to levy, execution or other process for
the satisfaction of Tenant's judgment and that Landlord shall not be
personally liable for any deficiency.
The references to "Landlord" in this Lease shall be limited to mean and
include only the owner or owners, at the time, of the fee simple interest in
the Building. In the event of a sale or transfer of such interest (except a
mortgage or other transfer as security for a debt), the "Landlord" named
herein, or, in the case of a subsequent transfer, the transferor, shall, after
the date of such transfer, be automatically released from all liability for
the performance or observance of any term, condition, covenant or obligation
required to be performed or observed by Landlord hereunder; and the transferee
shall be deemed to have assumed all of such terms, conditions, covenants and
obligations. Notwithstanding the foregoing, if at any time the loan to value
ratio with respect to the Buildings exceeds eighty-five percent (85%)
collectively for any and all mortgages on the Buildings, this Section 13.04
shall not have any effect on liabilities of Landlord to the extent of the
outstanding principal balance collectively of all mortgages against the
Buildings less eighty-five percent (85%) of the fair market value of the
Buildings.
SECTION 13.05. NONWAIVER OF DEFAULTS. Neither party's failure or delay in
exercising any of its rights or remedies or other provisions of this Lease shall
be construed to be a waiver thereof or affect its right thereafter to exercise
or enforce each and every such right or remedy or other provision. No waiver of
any default shall be deemed to be a waiver of any other default. Landlord's
receipt of less than the full rent due shall not be construed to be other than a
payment on account of rent then due, nor shall any statement on Tenant's
check or any letter accompanying Tenant's check be deemed an accord and
satisfaction, and Landlord may accept such payment without prejudice to
Landlord's right to recover the balance of the rent due or to pursue any other
remedies provided in this Lease. No act or omission by Landlord or its
employees or agents during the term of this Lease shall be deemed an acceptance
of a surrender of the Leased Premises, and no agreement to accept such a
surrender shall be valid unless in writing and signed by Landlord.
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SECTION 13.06. ATTORNEYS' FEES. If either party defaults in the
performance or observance of any of the terms, conditions, covenants or
obligations contained in this Lease and the non-defaulting party incurs legal
expenses to enforce the terms of this Lease against the defaulting party, then
the defaulting party agrees to reimburse the non-defaulting party for the
attorneys' fees incurred thereby.
ARTICLE 14 - LANDLORD'S RIGHT TO RELOCATE TENANT.
[INTENTIONALLY OMITTED.]
ARTICLE 15 - NOTICE AND PLACE OF PAYMENT
SECTION 15.01. NOTICES. Any notice required or permitted to be given
under this Lease or by law shall be deemed to have been given if it is written
and delivered in person or by overnight courier or mailed by certified mail,
postage prepaid, to (i) the party who is to receive such notice at the address
specified in the Basic Lease Provisions and (ii) in the case of a default notice
from Tenant to Landlord, any Lender designated by Landlord. When so mailed, the
notice shall be deemed to have been given as of the date it was mailed. Either
party may change its address by giving written notice thereof to the other
party.
SECTION 15.02. PLACE OF PAYMENT. All payments required to be made by
Tenant to Landlord shall be delivered or mailed to Landlord's management agent
at the address specified in the Basic Lease Provisions or any other address
Landlord may specify from time to time by written notice to Tenant.
ARTICLE 16 - TENANT'S RESPONSIBILITY REGARDING
ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES.
SECTION 16.01. DEFINITIONS.
a. "Environmental Laws" - All federal, state and municipal laws,
ordinances, rules and regulations applicable to the environmental and ecological
condition of the Leased Premises, including, without limitation, the Federal
Comprehensive Environmental Response, Compensation and Liability
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<PAGE>
Act of 1980, as amended; the Federal Resource Conservation and Recovery
Act; the Federal Toxic Substance Control Act; the Clean Air Act; the Clean Water
Act; the rules and regulations of the Federal Environmental Protection Agency,
or any other federal, state or municipal agency or governmental board or entity
having jurisdiction over the Leased Premises.
b. "Hazardous Substances" - Includes:
(i) Those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances" "solid waste"
or "infectious waste" in any of the Environmental Laws; and
(ii) Such other substances, materials and wastes which are or
become regulated under applicable local, state or federal law, or which are
classified as hazardous, toxic or infectious under present or future
Environmental Laws or other federal, state, or local laws or regulations.
SECTION 16.02. COMPLIANCE. Tenant, at its sole cost and expense, shall
promptly comply with the Environmental Laws which shall impose any duty upon
Tenant with respect to the use, occupancy, maintenance or alteration of the
Leased Premises. Tenant shall promptly comply with any notice from any source
issued pursuant to the Environmental Laws or with any notice from any insurance
company pertaining to Tenant's use, occupancy, maintenance or alteration of the
Leased Premises, whether such notice shall be served upon Landlord or Tenant.
SECTION 16.03. RESTRICTIONS ON TENANT. Tenant shall not cause or permit to
occur:
a. Any violation of the Environmental Laws related to environmental
conditions on, under, or about the Leased Premises, or arising from Tenant's use
or occupancy of the Leased Premises, including, but not limited to, soil and
ground water conditions.
b. The use, generation, release, manufacture, refining, production,
processing, storage or disposal of any Hazardous Substances on, under, or about
the Leased Premises, or the transportation to or from the Leased Premises of any
Hazardous Substances, except as necessary and appropriate for general office use
in which case the use, storage or disposal of such Hazardous Substances shall be
performed in compliance with the Environmental Laws and the highest standards
prevailing in the industry.
SECTION 16.04. NOTICES, AFFIDAVITS, ETC.
a. Tenant shall immediately notify Landlord of (i) any violation by
Tenant, its employees, agents, representatives, customers, invitees or
contractors of the Environmental Laws on, under or about the Leased Premises, or
(ii) the presence or suspected presence of any Hazardous Substances on, under or
about the Leased Premises and shall immediately deliver to Landlord any notice
received by Tenant relating to (i) and (ii) above from any source.
b. Tenant shall execute affidavits, representations and the like from
time to time, within five (5) days of Landlord's request therefor, concerning
Tenant's best knowledge and belief
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<PAGE>
regarding the presence of any Hazardous Substances on, under or about the Leased
Premises.
SECTION 16.05. LANDLORD'S RIGHTS.
a. Landlord and its agent shall have the right, but not the duty, upon
advance notice (except in the case of emergency when no notice shall be
required) to inspect the Leased Premises and conduct tests thereon at any time
to determine whether or the extent to which there has been a violation of
Environmental Laws by Tenant or whether there are Hazardous Substances on, under
or about the Leased Premises. In exercising its rights herein, Landlord shall
use reasonable efforts to minimize interference with Tenant's business but such
entry shall not constitute an eviction of Tenant, in whole or in part, and
Landlord shall not be liable for any interference, loss, or damage to Tenant's
property or business caused thereby.
b. If Landlord, any lender or governmental agency shall ever require
testing to ascertain whether there has been a release of Hazardous Substances
on, under or about the Leased Premises or a violation of the Environmental Laws,
and such requirement arose in whole or in part because of an act or
omission on the part of Tenant, then the reasonable costs thereof shall be
reimbursed by the Tenant to Landlord upon demand as Additional Rent.
SECTION 16.06. TENANT'S INDEMNIFICATION. Tenant shall indemnify and hold
harmless Landlord and Landlord's managing agent from any and all claims, loss,
liability, costs, expenses or damage, including attorney's fees and costs of
remediation, incurred by Landlord in connection with any breach by Tenant of its
obligations under this Article 16. The covenants and obligations of Tenant
under this Article 16 shall survive the expiration or earlier termination of
this Lease. Notwithstanding the foregoing, Landlord acknowledges that Tenant
will have no liability to Landlord hereunder with respect to any environmental
matter or condition to the extent such matter is/was caused or contributed to
by Landlord, its employees, agents or contractors.
ARTICLE 17 - MISCELLANEOUS
SECTION 17.01. BENEFIT OF LANDLORD AND TENANT. This Lease and all of the
terms and provisions hereof shall inure to the benefit of and be binding upon
Landlord and Tenant and their respective successors and assigns.
SECTION 17.02. GOVERNING LAW. This Lease shall be governed in accordance
with the laws of the State of Indiana.
SECTION 17.03. GUARANTY. [INTENTIONALLY OMITTED.]
SECTION 17.04. FORCE MAJEURE. Landlord shall be excused for the period of
any delay in the performance of any obligation hereunder when such delay is
occasioned by causes beyond its control, including, but not limited to, war,
invasion or hostility; work stoppages, boycotts, slowdowns or strikes; shortages
of materials, equipment, labor or energy; man-made or
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<PAGE>
natural casualties; unusual weather conditions; acts or omissions of
governmental or political bodies; or civil disturbances or riots.
SECTION 17.05. CONDITION OF PREMISES. Tenant acknowledges that neither
Landlord nor any agent of Landlord has made any representation or warranty with
respect to the Leased Premises or the Buildings or with respect to the
suitability or condition of any part thereof for the conduct of Tenant's
business except as provided in this Lease.
SECTION 17.06. EXAMINATION OF LEASE. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation of or
option for Lease, and it is not effective as a Lease or otherwise until
execution by and delivery to both Landlord and Tenant.
SECTION 17.07. INDEMNIFICATION FOR LEASING COMMISSIONS. The parties hereby
represent and warrant that the only real estate brokers involved in the
negotiation and execution of this Lease are those named in the Basic Lease
Provisions and that no other broker or person is entitled to any leasing
commission or compensation as a result of the negotiation or execution of this
Lease. Each party shall indemnify and hold the other harmless from any and all
liability for the breach of this representation and warranty on its part and
shall pay any compensation to any other broker or person who may be deemed or
held to be entitled thereto.
SECTION 17.08. QUIET ENJOYMENT. If Tenant shall perform all of the
covenants and agreements herein provided to be performed by Tenant, Tenant
shall, at all times during the Lease Term, have the quiet enjoyment and peaceful
possession of the Leased Premises.
SECTION 17.09. SEVERABILITY OF INVALID PROVISIONS. If any provision of this
Lease shall be held to be invalid, void or unenforceable, the remaining
provisions hereof shall not be affected or impaired, and such remaining
provisions shall remain in full force and effect.
SECTION 17.10. FINANCIAL STATEMENTS. During the Lease Term and any
extensions thereof, Tenant shall provide to Landlord on an annual basis, within
one hundred twenty (120) days following the end of Tenant's fiscal year, a copy
of Tenant's most recent annual report prepared as of the end of Tenant's fiscal
year. Such annual report shall be prepared in conformity with generally
accepted accounting principles, consistently applied.
SECTION 17.11. TENANT'S REPRESENTATIONS AND WARRANTIES. The undersigned
represents and warrants to Landlord that (i) Tenant is a Delaware that is duly
organized, validly existing and in good standing in accordance with the laws of
the state under which it was organized; (ii) all action necessary to authorize
the execution of this Lease has been taken by Tenant; and (iii) the individual
executing and delivering this Lease on behalf of Tenant has been authorized to
do so, and such execution and
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<PAGE>
delivery shall bind Tenant. Tenant, at Landlord's request, shall provide
Landlord with the evidence of such authority.
SECTION 17.12. REPRESENTATIONS AND INDEMNIFICATIONS.
[INTENTIONALLY OMITTED.]
SECTION 17.13 ADDITIONAL PROVISIONS. Additional provisions, if any, are
attached hereto as an Addendum, the provisions of which are incorporated herein
by reference. In the event of any inconsistencies between the provisions of this
Lease and of the Addendum, the provisions of the Addendum shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and
year first above written.
LANDLORD:
DUKE REALTY LIMITED PARTNERSHIP,
an Indiana limited partnership
By: Duke Realty Investments,
Inc., its General Partner
By: SIGNATURE ON FILE
------------------------
William E. Linville, III
Vice President
Indiana Industrial Group
TENANT:
VANSTAR CORPORATION, a Delaware
corporation
By: ROBERT C. KUNTZENDORF
----------------------------
Printed: ROBERT C. KUNTZENDORF
----------------------
Title: SENIOR VP
------------------------
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<PAGE>
STATE OF CALIFORNIA )
) SS:
COUNTY OF ALAMEDA )
Before me, a Notary Public in and for said County and State, personally
appeared Robert C. Kuntzendorf, by me known and by me known to be the Sr.
Vice President of Vanstar Corporation, a Delaware corporation, who
acknowledged the execution of the above and foregoing Lease Agreement for and
on behalf of said corporation.
WITNESS my hand and Notarial Seal this 3rd day of June, 1996.
CONSTANCE F. McTAGGART
_____________________________
Notary Public
CONSTANCE F. McTAGGART
_____________________________
(Printed Signature)
July 13, 1999
My Commission Expires:________________________
Alameda
My County of Residence:_______________________
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<PAGE>
Exhibit 10.17
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("Amendment"), is entered into as of May 15,
1996 by and between CM Winprop, Inc., a California corporation ('Landlord'), and
Vanstar Corporation (formerly Computerland), a Delaware corporation ('Tenant').
BACKGROUND
A. Rosewood Associates, a California general partnership ("Rosewood"),
and Tenant entered into that certain Lease dated June 17, 1988 (the 'Lease'),
whereby Tenant leased from Rosewood certain space at 5925, 5956 & 5964 West Las
Positas, located in the Hacienda Business Park in the City of Pleasanton,
California ("Premises"). The Premises are more particularly described in the
Lease. Each term used without definition in the Amendment shall have the
meaning given to such term in the Lease.
B. Rosewood assigned its interest under the Lease to Bank of New York
pursuant to an Assignment of Leases, dated May 5, 1995, by and between Rosewood
and Bank of New York in which Bank of New York took title under a Deed in Lease
as Rosewood Owner of California LLC. Bank of New York, as Rosewood owner of
California LLC, assigned its interest under the Lease to Landlord pursuant to an
Assignment of Leases, dated February 9, 1996, by and between Landlord and Bank
of New York and acknowledged by Estoppel Letter dated March 11, 1996.
C. Landlord and Tenant now desire to amend certain of the terms and
conditions set forth in the Lease to provide for an extension of the term of the
Lease, as more fully described herein.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises
contained herein, the parties to this Amendment hereby agree as follows:
1. EFFECTIVE DATE. The effective date ('Effective Date') of this
Amendment shall be May 15, 1996.
2. PREMISES. Effective January 15, 1998 the premises shall be reduced to
89,086 rsf, consisting of 5956 and 5964 West Las Positas, Pleasanton, (Reduced
Premises as shown on Exhibit A attached hereto).
3. TERM. As of the Effective Date, the term for the Reduced Premises
shall be extended through May 14, 2006.
4. MONTHLY RENT. Commencing as of the Effective Date, the Monthly Base
Rent shall be amended as follows:
<TABLE>
<CAPTION>
PERIOD MONTHLY BASE RSF MONTHLY BASE TI TOTAL
------ ------------ --- ------------ -- -----
RATE PER RSF RENT REIMBURSEMENT
------------ ---- -------------
<S> <C> <C> <C> <C> <C>
$1.05 x 134,476 = $141,200.00 $4,832.81 $146,032.81
</TABLE>
May 15, 1996 to
January 14, 1998
<PAGE>
<TABLE>
<CAPTION>
PERIOD MONTHLY BASE RSF MONTHLY BASE TI TOTAL
------ ------------ --- ------------ -- -----
RATE PER RSF RENT REIMBURSEMENT
------------ ---- -------------
<S> <C> <C> <C> <C> <C>
January 15, 1998 to $1.05 x 89,086 = $93,540.30 $4,832.81 $98,373.11
May 14, 1998
May 15, 1998 to $1.10 x 89,086 = $97,994.60 $4,832.81 $102,827.41
January 31, 1999
Feburary 1, 1999 to $1.10 x 89,086 = $97,994.60 $0 $97,994.60
May 14, 2000
May 15, 2000 to $1.16 x 89,086 = $103,339.76 $0 $103,339.76
May 14, 2002
May 15, 2002 to $1.22 x 89,086 = $108,684.92 $0 $108,684.92
May 14, 2004
May 15, 2004 to $1.28 x 89,086 = $114,030.08 $0 $114,030.08
May 14, 2006
</TABLE>
5. LIMITATION ON AMENDMENT. Except as modified by this Amendment, all of
the terms and provisions of the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have entered into this Amendment in
one or more counterparts.
LANDLORD
CM WINPROP, INC.
a California corporation
By: /s/ Henry Gaw
----------------------------------
Its: V.P.
----------------------------------
Date: 5/22/96
----------------------------------
<PAGE>
By: /s/ Jerelyn Luh
----------------------------------
Its:
----------------------------------
Date: 5/22/96
----------------------------------
TENANT
VANSTAR CORPORATION
(formerly Computerland),
a Delaware corporation
By: /s/ Robert C. Kuntzendorf
----------------------------------
Its: Senior VP
----------------------------------
Date: 5/21/96
----------------------------------
By:
----------------------------------
Its:
----------------------------------
Date:
----------------------------------
<PAGE>
EXHIBIT A
[MAP]
<PAGE>
Exhibit 11.1
VANSTAR CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
SEVEN
YEAR ENDED MONTHS
APRIL 30, ENDED YEAR ENDED
----------------------- APRIL 30, SEPTEMBER 30,
1996 1995 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
HISTORICAL CALCULATION:
Weighted average number of
common shares outstanding (Common A & B) 14,247 11,040 11,168 9,282
Common equivalent shares from stock options
and warrants using the treasury stock method 360 - 72 -
Common equivalent shares from preferred
stock using the as-if converted method (F & SP) 13,169 - 15,310 -
Common equivalent shares from stock options
and warrants related to SAB No. 83 using
the treasury stock method 2,445 2,671 2,671 2,671
-------- -------- -------- --------
Shares used in per share calculation 30,221 13,711 29,221 11,953
-------- -------- -------- --------
Net income (loss) $17,247 $1,268 $44,505 ($4,246)
Preferred stock dividends (2,988) (3,611) (2,332) (3,941)
-------- -------- -------- --------
Income(loss) applicable to common stock $14,259 ($2,343) $42,173 ($8,187)
-------- -------- -------- --------
-------- -------- -------- --------
Income (loss) per share $0.57 ($0.17) $1.52 ($0.68)
-------- -------- -------- --------
-------- -------- -------- --------
PROFORMA CALCULATION:
Weighted average number of
common shares outstanding 12,107 11,040
Common equivalent shares from stock options
using the treasury stock method 310 72
Common shares from the assumed conversion
of all outstanding preferred stock and warrants 20,306 18,703
Common equivalent shares from stock options
and warrants related to SAB No. 83 using
the treasury stock method 1,528 2,671
Pro forma shares used in computing
-------- --------
net income per share 34,251 32,486
-------- --------
-------- --------
Net income $17,247 $1,268
-------- --------
-------- --------
Pro forma net income per share $0.50 $0.04
-------- --------
-------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FISCAL
YEAR 1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FISCAL YEAR 1996 FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 14,498
<SECURITIES> 0
<RECEIVABLES> 298,484
<ALLOWANCES> 14,812
<INVENTORY> 350,406
<CURRENT-ASSETS> 691,570
<PP&E> 23,183
<DEPRECIATION> 48,287
<TOTAL-ASSETS> 803,365
<CURRENT-LIABILITIES> 375,828
<BONDS> 0
0
0
<COMMON> 40
<OTHER-SE> 127,013
<TOTAL-LIABILITY-AND-EQUITY> 803,365
<SALES> 1,578,298
<TOTAL-REVENUES> 1,804,813
<CGS> 1,430,404
<TOTAL-COSTS> 1,559,886
<OTHER-EXPENSES> 201,880
<LOSS-PROVISION> 14,393
<INTEREST-EXPENSE> 35,804
<INCOME-PRETAX> 12,782
<INCOME-TAX> 4,729
<INCOME-CONTINUING> 8,053
<DISCONTINUED> 9,194
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,247
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
